Economic theorists have suggested the possibility that preferences are dynamic and vary with environmental conditions. Are Risk-Preferences Dynamic? Within-Subject Variation in Risk-Taking as a Function of Background Music investigates such preference interactions as a possible explanation to why risk preferences can change.
Marja-Liisa Halko and Markku Kaustia present results from a lab experiment in which teenage subjects chose whether to participate in binomial gambles involving real money gains and losses. The decisions were made under three musical conditions: subjectively liked music, subjectively disliked music, and no music.
Researchers found that favorite music increases risk-taking, and disliked music suppresses risk-taking, compared to a baseline of no music. The results were statistically robust and have a meaningful magnitude.
Several theories in psychology propose mechanisms by which mood affects risk-taking, but the results do not completely square with any of these theories. The author’s contend, however, their results are consistent with preference complementarities that extend to abstract primitives, such as risk preference.
The preference-based interpretation of the results is supported by recent research in neuroscience. Berns et al. (2010) show that the activation in the reward areas of the brain are proportional to subjective ratings of music, and Halko et al. (2011) show that the behavioral effect of music on risk-taking co-varies with brain activation in left amygdala – a brain region known to be a key component of value computations.
What’s playing over your sound system, that of your investment managers and board members?