Hunger and risk taking

Understanding risk-taking behaviour is an important topic in behavioural economics. Much of the motivation for behavioural economics arises from various anomalies and paradoxes in behaviour in the areas of risk and intertemporal decision making. However it is not just of theoretical interest: risk-taking affects us all. Recent events in Ireland bring this home with a vengence. Our banks and financial institutions took extraordinary risks for which we are now paying dearly and will continue to do for many years. So what might explain this behaviour?
An interesting study by neuroscientists shows that hungry individuals take more risks. In an experiment, nineteen male participants performed a gambling task on three occasions, one week apart: either after a 14 hour fast, immediately after a 2000 calorie meal or one hour after a 2000 calorie meal. The effect of the meal was to reduce risk aversion. The effect depends on individuals level of adiposity. While one can understand that hunger,a desire to reach a given metabolic state, causes individuals to take greater risks in feeding that hunger - a quick dash into McDonalds perhaps- what is particularly interesting is that this transfers into decision making in another seemingly unrelated domain.
The policy implications would appear to be then that we should keep our bankers well fed: This conflicts somewhat with other people's recommendations, namely that we should starve the lot of them. Still, scientists can't be wrong, can they?

Symmonds, M., Emmanuel, J., Drew, M., Batterham, R., & Dolan, R. (2010). Metabolic State Alters Economic Decision Making under Risk in Humans. PLoS ONE, 5 (6) http://dx.doi.org/10.1371/journal.pone.0011090

Gender Differences in Risk Behaviour: Does Nurture Matter?

Alison L. Booth, Patrick Nolen
Women and men may differ in their propensity to choose a risky outcome because of innate preferences or because pressure to conform to gender-stereotypes encourages girls and boys to modify their innate preferences. Single-sex environments are likely to modify students' risk-taking preferences in economically important ways. To test this, we designed a controlled experiment in which subjects were given an opportunity to choose a risky outcome - a real-stakes gamble with a higher expected monetary value than the alternative outcome with a certain payoff - and in which the sensitivity of observed risk choices to environmental factors could be explored. The results of our real-stakes gamble show that gender differences in preferences for risk-taking are indeed sensitive to whether the girl attends a single-sex or coed school. Girls from single-sex schools are as likely to choose the real-stakes gamble as boys from either co ed or single sex schools

http://d.repec.org/n?u=RePEc:esx:essedp:672&r=cbe

Second-to-fourth digit ratio predicts success among high-frequency financial traders

"We found that 2D:4D predicted the traders’ long-term profitability as well as the number of years they remained in the business. 2D:4D also predicted the sensitivity of their profitability to increases both in circulating testosterone and in market volatility. Our results suggest that prenatal androgens increase risk preferences and promote more rapid visuomotor scanning and physical reflexes."

PNAS article - Coates et al. (2009)

New Blog on the Irish Economy

Thanks to Stepehen Kinsella for pointing me towards the new blog on the Irish economy: http://www.irisheconomy.ie/. Featuring many of Ireland's top macroeconomists, this blog looks like an interesting read, and a valuable source of information on economic developments as they are happening in Ireland.

Macroeconomics and finance don't feature a whole lot on this blog, but the chart below caught my imagination when it was forwarded on by a friend this week. It shows that investing in U.K. government debt is almost twice as risky as buying bonds sold by McDonald’s Corp., based on prices in the credit-default swap market since June. “Talk about ‘McBritain’ is an insult to Ronald’s outfit,” said Sean Corrigan, chief investment strategist at Diapason Commodities Management SA in Lausanne, Switzerland.

I assume that Irish government debt would stack up in a similar position to British govt. bonds. I'm hoping to get some data on this soon; but in the meantime its fascinating to see how financial markets can view a corporation as more of a safe bet than a major European government. I wonder if the average Joe's 'perception of risk' would correspond accordingly. In saying all of that, these are times when Keynesianism may be more appropriate than expanding the monetary base (see here, here, here, here and here), and McDonald's are making sizeable profits during this global recession, as we mentioned before (here).

Update on 19th December:

I got the chart for Ireland's government debt priced in the credit-default swap market for the same time period. Irish govt. debt is considered to be even riskier than the British counterpart, as well as a McDonald's bond.

Predicting Health Behaviors with an Experimental Measure of Risk Preference

Lisa R. Anderson (Department of Economics, College of William and Mary)
Jennifer M. Mellor (Department of Economics, College of William and Mary)

http://d.repec.org/n?u=RePEc:cwm:wpaper:59&r=cbe

We conduct a large-scale economics experiment paired with a survey to examine the association between individual risk preferences and health-related behaviors among adults aged 18 to 87 years. Risk preferences are measured by the Holt and Laury (2002) lottery choice experiment. Controlling for race, sex, and age, we find that risk preference is significantly associated with cigarette smoking, being overweight or obese, seat belt non-use, and driving over the speed limit. In additional specifications, we find that risk preference is significantly associated with heavy episodic drinking, and is a significant predictor of the number of risky behaviors.