Construal level as a mediator of stress-induced bias in financial decision making
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Abstract
Stress is extremely prevalent yet poorly understood in the context of decision making. While we know that high levels of stress can impact the distribution of cognitive resources, it is unclear how this is manifested in a complex decision-making context and what, if any, strategies can be leveraged to optimize stressed decisions. Financial decisions, some of the most stressful, complex and impactful ones we make, provide a useful tool for this level of inquiry. In this paper, we claim that the negative consequences of stress on financial decision making can be understood, and potentially mitigated, through the lens of psychological distancing. To test this idea, we test levels of financial stress, attitudes and behaviors in a sample of 1011 Americans, showing that higher levels of stress correlate with a number of poor financial attitudes and behaviors. This effect persists even when controlling for household income and credit score. In an effort to understand what strategies can thwart these effects, we find that more abstract (high-level construal) thinking styles are associated with positive financial behaviors and practices. Finally, we show that an abstraction exercise that induces high-level construal can have a remediating effect, improving certain financial behaviors and attitudes, even without addressing stress levels directly.
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