Effect of Emotion Regulation Difficulties on Financial Decision-Making

Emotion regulation is one of the factors affecting the performance in the financial markets and has been used as an explanation for some of the more puzzling economic behavior, with difficulties in regulating one's emotions being associated with worse outcomes in trading and tasks that involve heuristics and biases. Using an investment task, a sunk cost task, and a three-item version of a cognitive reflection test (CRT), we wanted to inspect if emotional dysregulation, as measured by the Difficulties in Emotion Regulation Scale (DERS), would explain the results and if there are specific area(s) of emotion dysregulation that are more problematic for decision-making. The results indicate that for sunk cost and logical tasks (which comprise CRT), the difficulties in engaging in appropriate strategies for regulating emotions are related to diminished performance. Additionally, gender differences were observed. Among women, difficulties in maintaining goal-directed behavior and difficulties in engaging in emotion regulation strategies were related to poor performance on the CRT, whereas for men it was related to falling prey to the sunk cost effect. The main contribution is showing which facets of difficulties in regulating emotions, as measured by DERS, are related to performance on CRT, a financial sunk cost task and a complex financial task.