We use survey data to measure households’ propensity to default on mortgages even if they can afford to pay them (strategic default) when the value of the mortgage exceeds the value of the house. The willingness to default increases both in the absolute and in the relative size of the home-equity shortfall. Our evidence suggests that this willingness is affected both by pecuniary and non-pecuniary factors, such as views about fairness and morality. We also find that exposure to other people who strategically defaulted increases the propensity to default strategically because it conveys information about the probability of being sued.

This study investigated (1) sex differences in hormonal responses to psychosocial stress; (2) the relation between variability in pre-test hormone concentrations and stress-induced hormonal changes; and (3) some possible sources of within-sex variationin pre-test hormone concentrations and in hormonal responses to the test in a large human subject population. To this end, changes in salivary concentrations of testosterone and cortisol in response to a mild psychosocial stressor (a set of computerized economic decision-making tests) were measured in a sample of over 500 MBA students. Males had higher concentrations of testosterone and cortisol than females both before and after the test. After taking effects of time of testing on hormone concentrations into account, testosterone showed a post-test decrease in males but not in females. Cortisol level increased in both sexes but the post-test increase was larger in females than in males. At the individual level, the pre-test concentrations of testosterone and cortisol predicted both the direction and the magnitude of the post-test hormone change, so that low pre-test hormone concentrations showed large post-test increases whereas high pre-test concentrations showed large post-test decreases. Within-sex variation in hormone concentrations was not accounted for by variation in 2D:4D digit length ratio, a marker of prenatal androgen exposure, but by social variables. Single males without a stable romantic partner had higher testosterone level than males with stable partners, and both males and females without a partner showed a greater cortisol response to the test than married individuals with or without children. Studies conducted with large sample sizes such as this one can help understand normative patterns of hormonal responses to psychosocial stimuli as well as  identify the sources of interindividual variation in endocrine function.

Women are generally more risk averse than men. We investigated whether between- and within-gender variation in financial risk aversion was accounted for by variation in salivary concentrations of testosterone and in markers of prenatal testosterone exposure in a sample of >500 MBA students. Higher levels of circulating testosterone were associated with lower risk aversion among women, but not among men. At comparably low concentrations of salivary testosterone, however, the gender difference in risk aversion disappeared, suggesting that testosterone has nonlinear effects on risk aversion regardless of gender. A similar relationship between risk aversion and testosterone was also found using markers of prenatal testosterone exposure. Finally, both testosterone levels and risk aversion predicted career choices after graduation: Individuals high in testosterone and low in risk aversion were more likely to choose risky careers in finance. These results suggest that testosterone has both organizational and activational effects on risk-sensitive financial decisions and long-term career choices.