Split personalities? Behavioral effects of temperature on financial decision-making

GKAVRESI, Despoina; LITINA, Anastasia; Makridis, Christos A.

doi:10.1111/kykl.12382

Download

Article (Scientific journals)

Split personalities? Behavioral effects of temperature on financial decision-making

GKAVRESI, Despoina; LITINA, Anastasia; Makridis, Christos A.

2024 • In Kyklos: Internationale Zeitschrift für Sozialwissenschaften, 77 (3), p. 664 - 689

Peer Reviewed verified by ORBi

Permalink
https://hdl.handle.net/10993/64260

DOI
10.1111/kykl.12382

Files (1)Send to Details Statistics Bibliography Similar publications

Files

Full Text

Kyklos - 2024 - Gavresi - Split personalities Behavioral effects of temperature on financial decision‐making (1).pdf

Author postprint (316.17 kB)

Download

All documents in ORBilu are protected by a user license.

Send to

RIS BibTex APA Chicago Permalink X Linkedin

Details

Keywords :

Economics and Econometrics; Micro Finance; Cultural Economics

Abstract :

[en] The fact that environmental factors have a broader effect on financial decision-making has been lengthily explored, but there is a gap in understanding how personality traits might mediate the effects of temperature on individual decision-making. Using plausibly exogenous variation of individuals' exposure to changes in national temperature between 2004 and 2018 across NUTS 1 regions in 29 European countries, we estimate the causal effect of a marginal change in temperature on financial investments and its interaction with the trait of optimism/pessimism using Survey of Health, Ageing and Retirement in Europe (SHARE) data. A 10% increase in temperature is associated with a 0.03 percentage point (pp) rise in the probability that an optimist invests in bonds and a 0.024 pp decline in the probability for investment in stocks. However, among pessimists, we find null effects. The results are comparable on the intensive margin. In sum, our results highlight the potentially heterogeneous ways that environmental factors shape individual decision-making.

Disciplines :

Social economics
Quantitative methods in economics & management
Special economic topics (health, labor, transportation...)
Finance

Author, co-author :

GKAVRESI, Despoina ^✱; University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Department of Economics and Management (DEM)

LITINA, Anastasia ; University of Macedonia, Greece > Economics

Makridis, Christos A. ; University of Nicosia, Nicosia, Cyprus ; Stanford University, Stanford, United States

^✱ These authors have contributed equally to this work.

External co-authors :

yes

Language :

English

Title :

Split personalities? Behavioral effects of temperature on financial decision-making

Publication date :

19 April 2024

Journal title :

Kyklos: Internationale Zeitschrift für Sozialwissenschaften

ISSN :

0023-5962

eISSN :

1467-6435

Publisher :

John Wiley and Sons Inc

Volume :

Issue :

Pages :

664 - 689

Peer reviewed :

Peer Reviewed verified by ORBi

Additional URL :

https://onlinelibrary.wiley.com/doi/pdf/10.1111/kykl.12382

Available on ORBilu :

since 14 February 2025

Statistics

Number of views

127 (7 by Unilu)

Number of downloads

48 (1 by Unilu)

More statistics

Scopus citations^®

Scopus citations^®
without self-citations

OpenCitations

OpenAlex citations

WoS citations^™

Bibliography

Adam, K., Marcet, A., & Beutel, J. (2017). Stock price booms and expected capital gains. American Economic Review, 107(8), 2352–2408.
Addoum, J. M., Korniotis, G., & Kumar, A. (2017). Stature, obesity, and portfolio choice. Management Science, 63(10), 3393–3413.
Adelino, M., Schoar, A., & Severino, F. (2018). Dynamics of housing debt in the recent boom and bust, NBER Macro Annual 2017 (pp. 312–317), Vol. 32: National Bureau of Economic Research, Inc.
Alesina, A., & Fuchs-Schündeln, N. (2007). Goodbye Lenin (or not?): The effect of communism on people's preferences. American Economic Review, 97(4), 1507–1528.
Andersen, S., Hanspal, T., & Nielsen, K. M. (2019). Once bitten, twice shy: The power of personal experiences in risk taking. Journal of Financial Economics, 3, 97–117.
Angelini, V., & Cavapozzi, D. (2017). Dispositional optimism and stock investments. Journal of Economic Psychology, 59, 113–128.
Barber, B. M., & Odean, T. (2001). Boys will be boys: Gender, overconfidence, and common stock investment. Quarterly Journal of Economics, 116(1), 261–292.
Baylis, P. (2020). Temperature and temperament: Evidence from Twitter. Journal of Public Economics, 184, 104161.
Becker, A., Deckers, T., Dohmen, T., Falk, A., & Kosse, F. (2011). The relationship between economic preferences and psychological personality measures. Annual Review of Economics, 4, 453–478.
Beshears, J., Choi, J. J., Laibson, D., & Madrian, B. C. (2018). Behavioral household finance, In Handbook of Behavioral Economics: Applications and Foundations 1 (Vol 1, pp. 177-276). Elsevier North-Holland.
Bloom, D. E., & Sachs, J. D. (1998). Geography, demography, and economic growth in Africa. Brookings Papers on Economic Activity, 2, 207–295.
Bordalo, P., Gennaioli, N., & Shleifer, A. (2012). Salience theory of choice under risk. Quarterly Journal of Economics, 127(3), 1243–1285.
Bordalo, P., Gennaioli, N., & Shleifer, A. (2013). Salience and consumer choice. Journal of Political Economy, 121(5), 803–843.
Bordalo, P., Gennaioli, N., & Shleifer, A. (2018). Diagnostic expectations and credit cycles. Journal of Finance, 73(1), 199–227.
Caplan, A. (2016). Measuring and modeling attention. Annual Review of Economics, 8, 379–403.
Coval, J., Hirshleifer, D., & Teoh, S. H. (2005). Self-deception and deception in capital markets, Deception in markets: An economic analysis: Palgrave Macmillan, pp. 113–130.
Coval, J. D., & Shumway, T. (2005). Do behavioral biases affect prices? Journal of Finance, 60, 1–34.
Dawson, C. (2017). Financial optimism and entrepreneurial satisfaction. Strategic Entrepreneurship Journal, 11(2), 171–194.
Deaton, A. (2008). Income, health, and well-being around the world: Evidence from the Gallup World Poll. Journal of Economic Perspectives, 22(2), 53–72.
Dell, M., Jones, B. F., & Olken, B. A. (2012). Temperature shocks and economic growth: Evidence from the last half century. American Economic Journal: Macroeconomics, 4(3), 66–95.
Dell, M., Jones, B. F., & Olken, B. A. (2014). What do we learn from the weather? the new climate-economy literature. Journal of Economic Literature, 52(3), 740–798.
DellaVigna, S., & Pollet, J. M. (2009). Investor inattention and Friday earnings announcements. Journal of Finance, 64(2), 709–749.
Donnelly, G., Iyer, R., & Howell, R. T. (2012). The big five personality traits, material values, and financial well-being of self-described money managers. Journal of Economic Psychology, 33(6), 1129–1142.
Durand, R. B., Newby, R., & Sanghani, J. (2008). An intimate portrait of the individual investor. The Journal of Behavioral Finance, 9(4), 193–208.
Finkelstein, A., Luttmer, E. F. P., & Notowidigdo, M. J. (2013). What good is wealth without health? the effect of health on the marginal utility of consumption. Journal of the European Economic Association, 11, 221–258.
Flavin, M., & Yamashita, T. (2011). Owner-occupied housing: Life-cycle implications for the household portfolio. American Economic Review, 101(3), 609–614.
Frazzini, A. (2006). The disposition effect and under-reaction to news. Journal of Finance, 61(4), 2017–2046.
Gervais, S., & Goldstein, I. (2007). The positive effects of biased self-perceptions in firms. Review of Finance, 11(3), 453–496.
Giglio, S., Maggiori, M., Ströbel, J., & Utkus, S. P. (2021). Five facts about beliefs and portfolios. American Economic Review, 111(5), 1481–1522.
Goetzmann, W. N., Kim, D., Kumar, A., & Wang, Q. (2014). Weather-induced mood, institutional investors, and stock returns. Review of Financial Studies, 28(1), 73–111.
Goetzmann, W. N., & Zhu, N. (2005). Rain or shine: Where is the weather effect? European Financial Management, 11(5), 559–578.
Grinblatt, M., & Keloharju, M. (2000). The investment behavior and performance of various investor types: A study of Finland's unique data set. Journal of Financial Economics, 55, 43–67.
Grinblatt, M., Keloharju, M., & Linnainmaa, J. (2011). IQ and stock market participation, 66(6), 2121–2164.
Guiso, L., Sapienza, P., & Zingales, L. (2004). The role of social capital in financial development. American Economic Review, 94(3), 526–556.
Guiso, L., Sapienza, P., & Zingales, L. (2008). Trusting the stock market. The Journal of Finance, 63(6), 2557–2600.
Hirshleifer, D. (2020). Presidential address: Social transmission bias in economics and finance. Journal of Finance, 75(4), 1779–1831.
Hirshleifer, D., Jian, M., & Zhang, H. (2016). Superstition and financial decision making. Management Science, 64(1), 235–252.
Hirshleifer, D., Jiang, D., & DiGiovanni, Y. M. (2020). Mood beta and seasonalities in stock returns. Journal of Financial Economics, 137, 272–295.
Hirshleifer, D., & Shumway, T. (2003). Good day sunshine: Stock returns and the weather. Journal of Finance, 58(3), 1009–1032.
Hofstede, G. (1980). Culture's consequences: International differences in work-related values: Sage Publications.
Isen, A. M. (2000). Positive affect and decision making, (2nd ed.). In Lewis, M., & Haviland-Jones, J. M. (Eds.), Handbook of emotions: Guilford Press, pp. 417–435.
Jenkins, R., Klein, J., & Parker, C. (2005). Mental health in post-communist countries: British Medical Journal Publishing Group.
Kahneman, D., & Tversky, A. (1979). Prospect theory: An analysis of decision under risk. Econometrica, 47(2), 263–292.
Kaplan, G., Mitman, K., & Violante, G. (2020). The Housing Boom and Bust: Model Meets Evidence. Journal of Political Economy, 128(9), 3285–3345.
Lerner, J. S., & Keltner, D. (2000). Beyond valence: Toward a model of emotion-specific influences on judgement and choice. Cognition and Emotion, 14(4), 473–493.
Lind, J. T., & Mehlum, H. (2007). UTEST: Stata module to test for a U-shaped relationship, Statistical software components.
Makridis, C. A., & Ransom, T. (2020). Beating the heat: Temperature and spatial reallocation over the short and long-run. SSRN working paper.
Makridis, C. A., & Schloetzer, J. (2023). Extreme local temperatures lower expressed sentiment about U.S. economic conditions with implications for the stock returns of local firms. Journal of Behavioral and Experimental Finance, 37, 100710.
Malmandier, U., & Nagel, S. (2011). Depression babies: Do macroeconomic experiences affect risk taking? Quarterly Journal of Economics, 126(1), 373–416.
Oster, E. (2019). Unobservable selection and coefficient stability: Theory and evidence. Journal of Business & Economic Statistics, 37(2), 187–204.
Park, R. J. (2020). Hot temperature and high stakes performance. Journal of Human Resources,57(2),400-434.
Puri, M., & Robinson, D. T. (2007). Optimism and economic choice. Journal of Financial Economics, 86, 71–99.
Rieger, M. O., Wang, M., & Hens, T. (2021). Universal time preference. PLOS One, 16(2), e0245692.
Robinson, J. A., & Acemoglu, D. (2012). Why nations fail: The origins of power, prosperity and poverty: Profile London.
Rodrik, D., Subramanian, A., & Trebbi, F. (2004). Institutions rule: The primacy of institutions over geography and integration in economic development. Journal of Economic Growth, 9, 131–165.
Roland, G. (2004). Culture, institutions, and economic development: A study of eight European regions: Edward Elgar Publishing.
Sanders, J. L., & Brizzolara, M. S. (1982). Relationships between weather and mood. Journal of General Psychology, 107(1), 155–156.
Schwarz, N., & Clore, G. L. (1983). Mood, misattribution, and judgments of well-being: Informative and directive functions of affective states. Journal of Personality and Social Psychology, 45(3), 513–523.
Stango, V., & Zinman, J. (2009). Exponential growth bias and household finance. Journal of Finance, 64(6), 2807–2849.
Stango, V., & Zinman, J. (2014). Limited and varying consumer attention: Evidence from shocks to the salience of bank overdraft fees. Review of Financial Studies, 27(4), 990–1030.
Wang, M., Rieger, M. O., & Hens, T. (2016). How time preferences differ: Evidence from 53 countries. Journal of Economic Psychology, 52, 115–135.
Zak, P. J., & Knack, S. (2001). Trust and growth. The Economic Journal, 111(470), 295–321.