February, 2014

Anxiety, Risk Preferences, Betrayal Aversion, and the Growth of Interpersonal Trust

  • Jason Aimone

    Assistant Professor of Economics, Baylor University
  • Sheryl B. Ball, Brooks King-Casas

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Anxiety is often associated with poor economic outcomes, including earning 13% to 18% less than non-anxious peers. On the other hand, few studies explore how anxiety affects an individual’s economic behavior. In part, this is due to a limited focus of clinical research on the impact of psychopathology, more generally, on economic choice. It is also due to the perceived conceptual overlap of anxiety with risk aversion and betrayal aversion, well-known behavioral economic characteristics. Our laboratory experiments disentangle these factors and show that anxiety has an independent effect on decision-making and merits separate theoretical modeling and experimental treatment and investigation. More specifically, we find that anxiety and betrayal aversion independently inhibit the growth of economic trust while greater risk tolerance is associated with an overall increased level of trust. Our findings suggest that anxiety diminishes the ability to adapt in changing social economic environments such as workplaces. In addition, the behavioral regularities that we find provide the foundation for future theoretical modeling.

Read more at SSRN.