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Optimistic thinking has long been immortalized in self-help books as a path to happiness, good health, and longevity, but it can also lead to the potential to make bad decisions with huge consequences for people’s financial well-being.
Research from the University of Bath shows that excessive optimism is actually linked to lower cognitive skills such as verbal fluency, fluid reasoning, numerical reasoning and memory.
Whereas people who are high in cognitive ability are both more realistic and pessimistic in their expectations about the future.
Also read: Optimistic? pessimistic? Realistic? How about having all three?
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“It is hard to predict the future with accuracy and that is why we expect people with lower cognitive ability to make more errors in both pessimistic and optimistic judgments. But the results are clear: lower cognitive ability leads to more self-flattering biases.” gives rise to – people are basically deceiving themselves to a certain extent.” said Dr Chris Dawson of the university’s School of Management.
“This points to the idea that while humans may be driven by evolution to hope for the best, people higher in cognitive ability are more able to override this automatic response when it comes to important decisions.” Plans based on overly optimistic beliefs lead to poor decisions and, Dr. Dawson said, “are bound to produce worse results than the actual beliefs.”
Decisions on major financial issues such as employment, investment or savings and any choices involving risk and uncertainty were particularly prone to this effect and produced serious implications for individuals.
“Unrealistically optimistic financial expectations can lead to excessive levels of consumption and debt, as well as inadequate savings. This can also lead to excessive business entries and subsequent failures. The odds of starting a successful business are small, but being optimistic Always think they have a shot in the arm and will start businesses that fail,” Dr. Dawson said.
The study – “Looking on the (b)right side of life: cognitive ability and misguided financial expectations” – took data from a UK survey of over 36,000 households and looked at people’s expectations about their financial well-being and their Actual comparisons were made. financial result.
The research found that people highest in cognitive ability experienced a 22 percent increase in the likelihood of “realism” and a 35 percent decrease in the likelihood of “extreme optimism.”
“The problem with being programmed to think positively is that it can adversely affect the quality of our decision-making, especially when we have to make serious decisions. We need to be able to overcome this and this research shows “That higher cognitive people have the ability to manage it better than people with lower cognitive abilities,” he said.
“Unrealistic optimism is one of the most widespread human traits and research has shown that people consistently underestimate the negative and overestimate the positive. The concept of ‘positive thinking’ is almost unquestionably embedded in our culture – and that It would be healthy to revisit trust,” Dr Dawson said. (ANI)
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