I kissed a croc and I liked it
|Joachim Klement||Aug 9, 2019|
In 2017 the Ig Nobel Prize for economics was awarded to Matthew Rockloff and Nancy Greer “for their experiments to see how contact with a live crocodile affects a person’s willingness to gamble”. The researchers asked 103 randomly selected visitors at a Saltwater Crocodile Farm in Australia to gamble on an electronic gambling machine. They compared the gambling activity both before and after holding a 1-metre crocodile and they found that after holding a croc, people bet more money but only if they reported a positive experience with the croc. People who reported predominantly negative emotions after having held the croc bet less money. I guess, if I just had just come face to face with a saltwater crocodile, I’d file that under “negative experience” and – depending on the size of the croc and the circumstances of the encounter – might not only be uninclined to gamble but may instead need a new pair of trousers.
But it seems that the negative arousal that inhibits gambling may have been a false positive. Enter Dien Giau Bui, Ifekhar Hasan, Chih-Yung Lin, and Gaiyan Zhang. These researtchers looked at a different trigger for arousal – earthquakes in Taiwan – and a different gamble – stock market investments.
The results of their research confirm the previous research insofar as investors who experienced a major disaster over the last twelve months invest more in stocks, trade more and place bigger bets in the stock market. However, for this state of “arousal” to materialize the disaster has to be major, which in their case means at least five fatalities (though the authors report that the results remain robust if the definition of “major disaster” is relaxed). After minor disaster or more than one year after any disaster, there was no such effect.
Ironically, because stock markets tend to provide positive returns on average (at least they did during the studied period, which, of course, is no guarantee), investing more in stocks after a natural disaster meant that investors earned higher returns as well. Which of course means that here is a top tip to improve your performance:
Enter a state of arousal before you make investment decisions.
Of course, it is difficult to seek out major earthquakes to enhance your investment returns but maybe getting up close and personal with a crocodile can help. Or you might take a hint from this Ig Nobel Prize winning study from 2000.