We study the impact of emotions on real-world decisions made by loan officers by analyzing the loan conditions of loans granted immediately after a bank branch robbery. We find significant differences between the conditions of loans granted after a robbery and changes in loan conditions that occur contemporaneously at unaffected branches. In general, loan officers seem to adopt so-called avoidance behavior. In accordance with the literature on posttraumatic stress, their avoidance behavior is halved within two weeks following the robbery and the effect further varies depending on the presence, or absence, of a firearm during the robbery.

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This study presents an alternative way of estimating credit transition matrices using a hazard function model. The model is useful both for testing the validity of the Markovian assumption, frequently made in credit rating applications, and also for estimating transition matrices conditioning on …rm-speci…c and macroeconomic covariates that in ‡uence the migration process. The model presented in the paper is likely to be useful in other applications, though we would hesitate to extrapolate numerical values of coe¢ cients outside of our application. Transition matrices estimated this way may be an important tool for a credit risk administration system, in the sense that with them a practitioner can easily forecast the behavior of the clients'ratings in the future and their possible changes of state.JEL Classi…cation: C4, E44, G21, G23, G38.