London : A recent study has revealed that optimism and positive thinking are often associated with longevity, success in life, and good health. However, they may also result in poor decision-making, which could have major consequences for people’s financial security.
According to a study from the University of Bath in the UK that was published in the journal Personality and Social Psychology Bulletin, being overly optimistic is actually linked to poorer cognitive abilities like memory, verbal fluency, fluid reasoning, and calculation reasoning.
In contrast, individuals with high cognitive ability typically have more realistic and pessimistic expectations for the future.
“Forecasting the future with accuracy is difficult and for that reason, we might expect those with low cognitive ability to make more errors in judgments, both pessimistic and optimistic. But the results are clear: low cognitive ability leads to more self-flattering biases – people essentially deluding themselves to a degree,” said Dr Chris Dawson of the University’s School of Management.
“Plans based on overly optimistic beliefs make for poor decisions and are bound to deliver worse outcomes than would realistic beliefs,” he added.
According to the researchers, decisions on major financial issues such as employment, investments or savings, and any choice involving risk and uncertainty, were particularly prone to this effect and posed serious implications for individuals.
The study took data from a UK survey of over 36,000 households and looked at people’s expectations of their financial well-being and compared them with their actual financial outcomes.
The study found that those highest on cognitive ability experienced a 22 per cent increase in the probability of “realism” and a 35 per cent decrease in the probability of “extreme optimism”.
“Unrealistic optimism is one of the most pervasive human traits and research has shown people consistently underestimate the negative and accentuate the positive. The concept of ‘positive thinking’ is almost unquestioningly embedded in our culture — and it would be healthy to revisit that belief,” Dawson said.
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