Quantifying the Cost of Decision Fatigue: Suboptimal Risk Decisions in Finance

Making decisions over extended periods of time is cognitively taxing and can lead to decision fatigue, which is linked to a preference for the ‘default’ option, namely whatever decision involves the least cognitive effort. Such effects have been demonstrated across a number of applied settings, including forensic and clinical contexts. An open question, however, is whether this necessarily leads to worse decision outcomes. Using 26,501 credit restructuring applications evaluated by credit officers of a major bank, here we show that in this real-life financial risk taking context credit loan approvals across the course of a day decreased during midday compared to early or later in the workday, reflecting a preference for the default option. We then modeled the bank’s additional credit collection if all decisions had been made during early morning levels of approval. This would have resulted in $509,023 extra revenue for the bank, for one month. Thus, we provide further evidence for decision-fatigue, and that it can have a substantial negative impact in the finance sector that warrants considerations to counteract it.