Job Loss Can Lead to Risky Decision-Making
Rather than being more financially cautious after a layoff, many become less so.
- By
- August 18, 2025
- CBR - Behavioral Science
Losing a job is intensely stressful, and often has consequences for behavior and mental health. But some of its psychological effects may run counter to expectations. While intuition, and many economic models, may suggest that people become more prudent when faced with reduced resources, research finds they do just the opposite when they experience unemployment.
To unravel the relationship between job loss and financial risk-taking, a team of researchers that included Chicago Booth’s Abigail Sussman carried out a set of studies during the first year of COVID-19, when unemployment in the United States was nearly 15 percent, its highest level since the Great Depression. The researchers utilized this natural setup to test how people who had lost their jobs approached risk compared with those who remained employed.
In the first study, the team analyzed survey data from more than 32,000 participants, some of whom had experienced a COVID-related job loss. Respondents indicated which they would choose between: a 100 percent guarantee of winning $50 or a series of reduced odds of winning $100 (90 percent, 80 percent, and so on). Those who had lost their jobs showed a greater willingness to gamble for a bigger payoff.
Separately, the same respondents all indicated how many lottery tickets they’d purchased over the previous week. Those who were employed had bought an average of 0.80 lottery tickets, while those who had lost their jobs recently bought nearly twice as many. This divide resonates with national data showing that scratch-off lottery ticket sales rose more than 80 percent during the pandemic.
Another study used real bank data from 400,000 Australians to compare people’s spending behavior before and after losing a job. The researchers were especially interested in the money spent on gambling, which they used as a proxy for risk-taking behavior. Workers who had lost their job spent less money across the board—but cut spending on gambling far less than other categories.
A shift in perspective
Participants who were recently jobless took more financial risks than those still employed.
“People are taking more financial risk in the period after job loss than they would have taken if they had not lost their jobs,” the authors write.
Finally, the team simulated a layoff. They enrolled 200 participants and had them carry out a simple learning task to earn bonuses. To mimic job loss, halfway through the task they told some participants that they could no longer earn bonuses. When given the opportunity to gamble their existing money at the end of the task—either doubling or forfeiting it all—50 percent of those who lost their “jobs” took the gamble versus 27 percent of those who hadn’t.
But things changed when the researchers cushioned the pain of the “job loss.” When participants were given either a lump sum (akin to severance or unemployment insurance) or the chance to work for half the previous rate, the job-loss group’s odds of accepting the double-or-nothing offer was on par with those who hadn’t lost their jobs.
The researchers conclude that job loss can increase financial risk-taking, noting that in the real world, risky decision-making after a job loss could have long-term financial effects—and might affect other areas, such as health. Since layoffs are a fact of professional life, the authors suggest policymakers implement creative strategies to counteract their negative effects.
“Although providing a strong social safety net for people who have already lost their jobs is an important policy goal,” the researchers write, “our results suggest the importance of studying policies designed to keep people employed, perhaps at reduced hours or pay. Such policies could offset the increased risk-taking after job loss that we examined.”
Samuel D. Hirshman, Abigail Sussman, Carlos Vazquez-Hernandez, Daniel O’Leary, and Jennifer S. Trueblood, “The Effect of Job Loss on Risky Financial Decision-Making,” Proceedings of the National Academy of Sciences, January 2025.
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