Split personalities? Behavioral effects of temperature on financial decision-making

The fact that environmental factors have a broader effect on financial decision-making has been lengthily explored, but there is a gap in understanding how personality traits might mediate the effects of temperature on individual decision-making. Using plausibly exogenous variation of individuals' exposure to changes in national temperature between 2004 and 2018 across NUTS 1 regions in 29 European countries, we estimate the causal effect of a marginal change in temperature on financial investments and its interaction with the trait of optimism/pessimism using Survey of Health, Ageing and Retirement in Europe (SHARE) data. A 10% increase in temperature is associated with a 0.03 percentage point (pp) rise in the probability that an optimist invests in bonds and a 0.024 pp decline in the probability for investment in stocks. However, among pessimists, we find null effects. The results are comparable on the intensive margin. In sum, our results highlight the potentially heterogeneous ways that environmental factors shape individual decision-making.