Temperature’s toll on decision-making

Abstract

Does temperature affect decision-making abilities and rationality? Using Indonesian data, we estimate how risky choices, impatience and rational choice violations vary with exposure to temperature. We show that hot weather temporarily increases rational choice violations and impatience but does not affect risk-related decisions. These effects are primarily driven by nighttime rather than daytime temperatures. We provide suggestive evidence that the mechanism behind these effects is decreased sleep quality, affecting cognition the following day, particularly math skills. These skills are critical for rational and utility-maximizing decision-making. Effects are largest for economically disadvantaged households and in areas with low rates of air-conditioning.