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Journal article
The Stress-Response Costs in Decision Making
Theoretical Economics Letters, Vol.15(3), pp.747-762
2025
Abstract
Incoming information brings in news which could be neutral, good, or bad. However, the brain and the body’s response to bad news is much stronger and sustained. Bad news may trigger the human stress-response system which creates a chemical bath in both the brain and the body. In particular, the stress hormone, cortisol, is released, which provides a quick boost of energy to the body and the brain. However, repeated or continuous exposure to cortisol exacts substantial costs on both the brain and the body. We argue that it is implausible to assume that the brain, which ultimately is the seat of all decision-making, completely ignores all such costs. In this article, we show that the inclusion of such costs provides a unified explanation for the Allais paradox and the Ellsberg paradox and makes predictions that are empirically supported. We further show that such costs potentially contribute to high and countercyclical equity-premia.
Details
- Title
- The Stress-Response Costs in Decision Making
- Authors
- Hammad Siddiqi (Author) - University of the Sunshine Coast, Queensland, School of Business and Creative Industries
- Publication details
- Theoretical Economics Letters, Vol.15(3), pp.747-762
- Publisher
- Scientific Research Publishing, Inc.
- Date published
- 2025
- DOI
- 10.4236/tel.2025.153041
- ISSN
- 2162-2086; 2162-2078
- Copyright note
- Copyright © 2025 by authors and Scientific Research Publishing Inc. This work and the related PDF file are licensed under a Creative Commons Attribution 4.0 International License.
- Organisation Unit
- School of Business and Creative Industries
- Language
- English
- Record Identifier
- 991146639502621
- Output Type
- Journal article
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