How Financial News Affects Prosocial Behavior

Kang, Polly and Daniels, David and Schweitzer, Maurice E., How Financial News Affects Prosocial Behavior (April 22, 2020). SSRN: https://ssrn.com/abstract=3583884

Abstract: A fundamental puzzle in the social and natural sciences is why humans, in contrast to other animals, routinely help strangers at substantial personal cost. Scholars assert that humans’ hyper-prosociality can be explained by the “warm glow” prosocial actors derive from helping others, and predict that people with greater resources will help more. We challenge these assertions. Many prosocial behaviors involving feedback, like volunteering, are actually warm glow gambles: first, prosocial actors invest affective resources trying to help others; then, positive feedback (e.g., feedback suggesting “success”) boosts affective resources but negative feedback (e.g., feedback suggesting “failure”) diminishes affective resources. We theorize that either negative affect shocks (by depleting affective resources) or positive affect shocks (by triggering risk aversion) can decrease people’s likelihood of taking warm glow gambles. We test this by studying the influence of a complex human institution, the stock market, which broadcasts negative affect shocks when the market falls (suggesting bad financial news) and positive affect shocks when it rises (suggesting good financial news). Analyzing a unique, massive five-year dataset of nearly 3 million text messages sent by volunteer crisis counselors, we show that significantly fewer people volunteer when stock returns are either extremely negative or extremely positive; prosocial behavior peaks on “normal” days when returns approach zero. Further supporting our theory, these effects are moderated by the level of positive affect in volunteers’ geographical areas. Our findings contradict existing theories and lay beliefs. Ironically, an institution designed for economic efficiency broadcasts signals that profoundly influence humans’ hyper-prosocial behavior.

Keywords: prosocial behavior; warm glow; prospect theory; financial markets