The level of light, and the change in light relative to the past two days, impact tolerance for financial risk and uncertainty. Though the changes are not dramatic enough to fundamentally change individual behavioral preferences, they are measurable and impact financial decisions. The study’s authors say this implies that altering the light intensity at stock exchanges “ought to have an effect on market volatility and risk premiums.”

Researchers tested four specific behavioral characteristics using a lottery with various payouts and odds. The first was risk attitude, or how willing participants were to accept financial risk. The second was tolerances for ambiguity (meaning uncertain outcomes). The third was dominance violations, which is not choosing the outcome with the best odds. The final was the consistency of choice, or how consistent and inconsistent participants were with their choices.

Study participants were more likely to choose the lottery than a fixed payout when the levels of sunshine (luminance) were lower. Conversely, high luminance levels were associated with higher levels of risk aversion, meaning a greater preference for the fixed payout. The researchers described the effects of luminance on risk-taking as being “not shockingly large, but…nevertheless quite substantial.” Age played a role, with older adults affected more.

Higher levels of luminance on the day of the study relative to the previous two days was associated with greater ambiguity tolerance. The more relative luminance there was, the more optimistic study participants were about their odds of winning. Put another way, stable levels of light caused participants to be less willing to accept uncertain outcomes.

Participants were also more likely to choose payoffs with worse odds on days with more sunlight. On such days, participants were more likely to opt for a lottery “that would pay at most $5 with probability strictly lower than 100%” then a certain payout of $5. The behavioral pattern was stronger if luminance was lower on the preceding two days. The effect was more evident among men and older adults.

The level of luminance on the day of the test had no impact on how consistent participants’ choices were. However, when there was more (or less) luminance on the test day relative to the previous two days, participants were less (or more) choice consistent.

Source: “Let the Sunshine In? The Effects of Luminance on Economic Preferences, Choice Consistency and Dominance Violations,” Paul Glimcher and Agnieszka Tymula, SSRN, May 2015.