Does Anxiety Improve Economic Decision-Making?

TL;DR

This study explores how everyday emotional states, particularly anxiety, influence economic decision-making, revealing that worry can enhance decision quality in routine consumption choices, contrary to common assumptions.

Contribution

It provides new evidence that emotional states like worry can improve decision-making in daily economic choices, challenging prior beliefs about stress impairing performance.

Findings

Poor decision-making costs about half of daily consumption budgets.

Material circumstances and emotional states both influence decision quality.

Worry is associated with improved decision-making in routine consumption choices.

Abstract

We study the associations between everyday economic decision-making quality and people's emotional states. Using high-frequency, highly disaggregated consumer "scanner" data, we show that the cost of poor decision-making is substantial, on average equal to around half of day-to-day consumption budgets. While material circumstances help explain decision-making quality, how people feel about those circumstances is equally important. Contrary to evidence that stress and worry impair performance in settings where distraction is costly, we find these same feelings are associated with improved decision-making for frequently made consumption choices. This is consistent with worry increasing attentiveness to decisions within households' locus of control.