The Financial Costs of Sadness
Sadness can bring on substantial financial loss, according to a new study.
Using data collected at the Harvard Decision Science Laboratory and the Center for Decision Sciences at Columbia, researchers found that subjects randomly assigned to view a video that brought on sadness exhibited impatience and a lack of insight. These factors led to financial decisions that elicited higher gains in the short term, but lesser gains over the longer term.
The research showed that sad subjects earned significantly less money than subjects in a neutral condition. The sad subjects showed what is known as “present bias,” where decision-makers want immediate gratification, so they ignore greater gains associated with waiting, the researchers explain.
Across three experiments, the median sad participant valued future rewards — those delayed by three months — 13 percent to 34 percent less than the median neutral-state participant, according to the researchers.
“These differences emerged even though real money was at stake and even though discount rates in the neutral condition were already high,” the researchers added.
“These experiments, combining methods from psychology and economics, revealed that the sadder person is not necessarily the wiser person when it comes to financial choices,” the researchers concluded.
“Instead, compared with neutral emotion, sadness — and not just any negative emotion — made people more myopic, and therefore willing to forgo greater future gains in return for instant gratification.”
The researchers contend that their findings have important implications for the design of public policy in areas such as estate planning and credit card regulations.
“Public-policy design and implementation need to be based on consideration of the full range of psychological processes through which decisions are made,” the researchers said.
“Fully understanding these processes may also help address the economic problems associated with Americans’ increasing reliance on credit cards.”
The study was published in the journal Psychological Science.
Source: Harvard University
Wood, J. (2012). The Financial Costs of Sadness. Psych Central. Retrieved on July 31, 2015, from http://psychcentral.com/news/2012/11/15/the-financial-costs-of-sadness/47723.html