Stress Testing

In another recent edition of ‘The Economist’ a study was reviewed around stress. Anthony Porcellia and Mauricio Delgado at Rutgers looked at the financial risks people were likely to make when calm or stressed. Their findings explain much of the current economic crisis. The experiment involved students playing a gambling game. To stimulate stress, for part of the game half of the students had their main hand in very cold water. The results were described in terms of the difference between the analytical brain and the intuitive brain. The analytical brain is easily disrupted by outside stimuli, such as stress. The psychologists found that exposure to stress led participants to choose riskier decisions when trying to decide between taking a major or minor loss. The reverse was true with gains. Traders were in very unknown territory during the financial crisis and were therefore more likely to take riskier decisions to avoid loss. Thus, much of the explanation for the financial crisis may lie not in economic policy but in the psychology of the money traders in times of the unknown.
This I believe is what makes I/O Psychology such a fascinating discipline in that it is so multi-faceted. The problems that we solve as I/O Psychologists have a real world application and invariably involve a combined approach across disciplines to solve some of the great business and economic problems of our time.

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