Optimistic thinking is immortalized in self-help books as a way to happiness, good health, and longevity, but it can also lead to poor decision-making, with major consequences for people’s financial well-being. Research from the University of Bath shows that excessive optimism is associated with lower cognitive skills such as verbal fluency, fluid reasoning, numerical reasoning and memory. Whereas high cognitive abilities tend to be more realistic and pessimistic in their expectations about the future.
“Predicting the future with precision is difficult, and therefore, we might expect people with low cognitive ability to make more errors in judgment, both pessimistic and optimistic. But the results are clear: low cognitive ability leads to a more self-flattering bias – University School of “This points to the idea that while humans may be primed by evolution to hope for the best, people with cognitive abilities are more able to override this automatic response when making important decisions,” said Dr. Chris Dawson of Management. “Plans based on overly optimistic beliefs make for poor decisions and are bound to produce worse outcomes than realistic beliefs,” Dr. Dawson added.
Decisions about major financial matters such as employment, investing or saving, and any choice involving risk and uncertainty were particularly prone to this effect and had serious implications for individuals. “Unrealistically optimistic financial expectations can lead to excessive spending and debt as well as insufficient savings. This can lead to excessive business entry and subsequent failure. The odds of starting a successful business are slim, but optimists always think they have an underachievement. . is shot and will start businesses that are destined to fail,” said Dr. Dawson.
The study – “Looking on the (b)right side of life: cognitive ability and inaccurate financial expectations” – took data from a survey of more than 36,000 households in the UK and looked at people’s expectations about their financial well-being and compared them with. Actual financial results. The study found that those with the highest cognitive abilities had a 22% increased likelihood of “realism” and a 35% decreased likelihood of “extreme optimism.”
“The problem with programming us to think positively is that it can adversely affect the quality of our decision-making, especially when we have to make serious decisions. We have to be able to over-ride it, and this research shows that people with higher cognitive ability have lower cognitive ability. It handles it better than the donees,” he said. “Unrealistic optimism is one of the most pervasive human traits and research has shown that people consistently underestimate the negative and exaggerate the positive. The concept of ‘positive thinking’ is almost certainly embedded in our culture – and it would be healthy to rethink this belief,” added Dr Dawson. .