The intensity of light around when you consider your finances can have a large impact on the quality of decision making.
A study of more than 2,500 people provides new evidence about the effects of luminance on the quality and consistency of financial decision-making.
Luminance is a measurement of the amount of light that falls on the earth’s surface, which can be affected by cloud cover, humidity, suspended particles, and time of day and year.
Researchers already know luminance affects behaviour, with sensors in the human retina carrying continuous information on light levels to the hypothalamus, a section of the brain which regulates functions such as hunger, sleep and sex drive.
The study which investigated how luminance affected the decisions of 2,530 people on monetary gambles, is published in the journal PLOS ONE.
“On the days with higher light intensity, people made worse decisions and they were more inconsistent in the choices that they made,” says University of Sydney Associate Professor Agnieszka Tymula.
Luminance also affected people’s risk attitudes.
When the luminance level was high people were more likely to avoid known risks. When offered a choice between a certain $5 payout and a 50% chance of $20, they were more likely to go for the certain $5.
But they had greater tolerance for unknown risks. On high luminance days, they were more likely to go for an unknown chance of getting $20 over the certain $5 payout.
“Overall, the effects are not of an enormous magnitude, but nevertheless they are consistent, significant, and strong enough to be expected to have significant effects on financial markets,” says Tymula.
She and co-author Professor Paul Glimcher of New York University asked people to make 40 monetary decisions, using touch screens mounted at an exhibition on ageing at the National Academy of Science Museum in Washington.
Managing risky decisions
Tymula’s research centres on the trade-offs people make when deciding between safe but smaller rewards and larger rewards that come with more risk, and understanding who will tolerate more risk and in what circumstances.
For example, it is a misconception that teenagers are prone to risk-taking.
“We have compared the risk attitudes of 12-to-90 year olds and we found something interesting when we separated between known and unknown risk,” she says.
“We discovered that when the risks are known, adolescents are just as risk averse as older adults and actually much more risk averse than middle-aged adults,” she says.
“It’s in situations where they don’t know the odds that adolescents take more risks. They behave as though the odds are skewed towards positive outcomes.”
You can improve chances of making the right decisions by reducing the number of choices.
“The more options you have to consider when making a decision, the more you have to spread your neural resources around,” says Tymula. .
“As a consequence, the signals in your brain become noisy and you are more likely to make mistakes. For example, as you increase the number of options, people are more likely to pick their second preference over their first.
“You should start by eliminating the worst choices — what we call the distractors — first. This allows you to make the best decision.”