Why stress makes us take more risks in financial decisions

Every day, we make choices. Some are big, some small. We weigh options, imagine outcomes, and decide what feels right. But what happens when we’re under pressure? When our minds are clouded with stress, our usual decision-making process shifts.

We may take chances we would normally avoid. Scientists have long studied the brain’s reaction to stress. Now, a new study from the University of Arkansas offers deeper insight.

The research explains how stress alters our natural instinct to avoid loss. The key concept here is “loss aversion,” a deeply rooted human bias that makes us fear losing more than we value gaining. When stress enters the picture, this aversion fades.

People begin making riskier choices, especially with money. Understanding why this happens can help us make better decisions, even when life gets tough.

Stress dulls fear of loss

Imagine finding a hundred-dollar bill on the street. You’d feel lucky. Now imagine losing that same amount. For most people, the emotional pain of losing feels much stronger than the happiness of gaining. That’s loss aversion.

Loss aversion is a natural mental shortcut. It helps us avoid danger and preserve what we already have. However, the University of Arkansas study reveals that stress changes how this bias works.

When people are stressed, they no longer fear loss as much. This reduced sensitivity can push them to make bolder financial decisions they might later regret.

Lead author Grant Shields explained the personal side of this idea: “In my own life, if I’m stressed, I’ll wait to make a decision that could have potential loss implications.”

His comment reflects a natural hesitation most of us feel. But the study shows that not everyone reacts this way under stress – especially when gender comes into play.

Gender shapes stress response

One of the most interesting findings from the study is that stress does not affect everyone in the same way. Specifically, different genders show distinct patterns in how they respond to high-pressure situations.

The researchers observed that men tend to change their decision-making strategies more dramatically when stressed. Women, on the other hand, maintain better prediction skills under pressure.

That means, women can often estimate what might happen more accurately, even when their stress levels rise. Men may not predict as well, but they tend to grasp the implications of a decision’s outcome more clearly.

These subtle differences add complexity to our understanding of human behavior and suggest that our biological makeup might shape how we manage risk when things get intense.

Simulating financial pressure

To dig into these behaviors, researchers created an experiment involving 147 participants. They placed each person in a stressful situation, then asked them to make a series of financial decisions.

The scenarios were hypothetical but realistic. The goal was to mimic the kind of stress people feel in real life and measure how it influences decision-making.

Zach Gray, a psychology doctoral student, and Trey Malone, a former University of Arkansas agricultural economist now at Purdue University, joined Shields in leading the research.

“Financial risk is easy to assess, because people have a pretty good idea about what they would do with their own money,” Shields explained.

That made it easier to isolate what changed under stress. It wasn’t about learning a new skill or solving a complex puzzle. It was about seeing how people shift their priorities when their minds are under pressure.

How the brain calculates risk

To interpret their findings, the researchers used a model called cumulative prospect theory.

This framework breaks down decision-making into four parts: loss aversion, risk aversion, randomness in choices, and probability distortion. It helps explain why people behave in unpredictable ways when facing uncertainty.

Probability distortion is especially revealing. It shows why people buy lottery tickets. They focus on the tiny chance of winning rather than the overwhelming likelihood of losing. Under stress, this distortion can become stronger.

People start believing unlikely outcomes are more possible than they truly are. That can lead to poor financial decisions, from risky investments to unnecessary spending.

“My research was aimed at understanding these component processes that go into that calculus,” Shields said.

By focusing on each part of the decision-making model, the team could see which changes mattered most. It turns out that loss aversion, usually a strong guide, weakens the most under stress.

Risky roots of stress

In today’s world, risky choices often carry serious consequences. Yet stress seems to push us toward those very choices. From gambling to impulsive spending, the effects are easy to spot. But why would evolution shape us this way?

“If you’re an organism that’s being hunted or chased by another, then it makes sense to do stuff that you wouldn’t otherwise. Perhaps making a risky decision is better than staying put,” said Shields.

This survival logic may still live inside us, even if our threats are now bills, deadlines, or social pressure instead of predators.

Understanding the roots of risky behavior helps us manage it better. Stress might once have helped us survive. Today, it might lead us into trouble. Knowing how our minds change under pressure is the first step toward making wiser decisions, even when we feel overwhelmed.

The study is published in the journal Psychoneuroendocrinology.

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