Risk taking is central to human activity. Consequently, it lies at the focal point of behavioral sciences such as neuroscience, economics, and finance. Many influential models from these sciences assume that financial risk preferences form a stable trait. Is this assumption justified and, if not, what causes the appetite for risk to fluctuate? We have previously found that traders experience a sustained increase in the stress hormone cortisol when the amount of uncertainty, in the form of market volatility, increases. Here we ask whether these elevated cortisol levels shift risk preferences. Using a double-blind, placebo-controlled, cross-over protocol we raised cortisol levels in volunteers over 8 d to the same extent previously observed in traders. We then tested for the utility and probability weighting functions underlying their risk taking and found that participants became more risk-averse. We also observed that the weighting of probabilities became more distorted among men relative to women. These results suggest that risk preferences are highly dynamic. Specifically, the stress response calibrates risk taking to our circumstances, reducing it in times of prolonged uncertainty, such as a financial crisis. Physiology-induced shifts in risk preferences may thus be an underappreciated cause of market instability.
The home advantage is a widely acknowledged sporting phenomenon, especially in association football. Here, we examine the second leg home advantage, an effect that is discussed in the public domain but which has received very little scientific attention. The second leg home advantage effect occurs when on average teams are more likely to win a two-stage knock-out competition when they play at home in the second leg. That is, both teams have a home advantage but this advantage is significantly greater for the team that plays at home second. Examining data from three different European Cup football competitions spanning 51 years, we show that the second leg home advantage is a real phenomenon. The second leg home team has more than a 50% probability to qualify for the next round in the competition even after controlling for extra time and team ability as possible alternative explanations. The second leg home advantage appears, however, to have decreased significantly over the past decade. Possible reasons for its existence and subsequent decline are presented.
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