SYDNEY — Among market analysts, the weather is more than a topic of small talk.
Beyond its influence on factors such as crop yields and insurance claims, experts have long discussed whether or not weather directly impacts financial decision making.
Adding to the argument that it does, a two-year study conducted by University of Sydney and New York University researchers has significantly increased the understanding of how sunshine affects investment choices. On brighter days (more specifically identified in the study as more ‘luminous’ days) they found people took less chances with money when it came to known risks.
But surprisingly, on more luminous days people seem to take more chances when the risk was unknown.
“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 study co-author Agnieszka Tymula in a news release.
Working alongside Professor Paul Glimcher of New York University, Tymula had some 2,530 people make 40 monetary decisions each on touch screens mounted at the National Academy of Science Museum in Washington D.C. The information was collected between May 2012 and May 2014.
They found that on bright days, people were more likely to take a guaranteed $5 payout rather than take the risk of a 50 percent chance at $20.
But, on such bright days, they also found people were more likely to to take a chance at the $20 if the chances of getting it were unknown.
Other choices revealed more subtle, but still statistically significant, variations in participants’ risk taking. The researchers were able to match the choices to data on the day’s brightness as measured by equipment at Dulles airport, which is fairly close to the touch screen kiosks.
“On the days with higher light intensity, people made worse decisions and they were more inconsistent in the choices that they made,” Tymula explains.
In the paper, the researchers noted that while the specific results are new and interesting, the fact that light affects decision making is not surprising. Indeed, it has been known for some time that the hypothalamus, “a section of the brain which regulates functions such as hunger, sleep and sex drive,” continuously receives signals from the eyes regarding light levels.
Reinforcing this knowledge, other recent studies have confirmed that specific frequencies of light affect sleep cycles and alertness. Accordingly, researchers have recommended the use of blue blocking glasses when looking at phone, computer, or television screens before bed.
Explaining a separate 2015 study, an article in The Wall Street Journal noted bad weather also can generate a mild depression “that distracts even some of the market’s most sophisticated participants, causing them to delay their responses to financial news.”
That research, like Glimcher and Tymula’s, noted such effects, while perhaps small for the individual, could add up to be quite strong when spread over the many people involved in market fluctuations.
As far as further deductions from Glimcher and Tymula, they also noted that “the effect of luminance on risk taking was stronger for older participants which is in line with the evidence that older people are more vulnerable to weather and climate changes.”
In the concluding words of their study, the researchers added that there is now enough evidence to suggest that manipulating the overhead lighting at places like the New York Stock Exchange could significantly affect market volatility and risk premiums.
The research was published this month in the journal PLOS ONE.