The release from Association for Psychological Science:
Your emotions can certainly impact your decisions, but you might be surprised by the extent to which your emotions affect your pocketbook. New research from psychological scientist Jennifer Lerner of the Harvard Kennedy School of Government and colleagues Yi Le and Elke U. Weber of Columbia University explores how impatience brought on by sadness can in turn produce substantial financial loss. The study is published in Psychological Science, a journal of the Association for Psychological Science.
Using data collected at the Harvard Decision Science Laboratory and the Center for Decision Sciences at Columbia, the authors found that subjects randomly assigned to view a video that induced sadness exhibited impatience and myopia, which were manifested in financial decisions that elicited higher gains in the short term, but lesser gains over the longer term. Thus, subjects in the sadness condition earned significantly less money than subjects in the neutral condition. They showed what is known as “present bias,” wherein decision makers want immediate gratification and so they ignore greater gains associated with waiting.
“Across three experiments, the median sad participant valued future rewards (i.e., those delayed by 3 months) 13% to 34% less than did the median neutral-state participant. These differences emerged even though real money was at stake and even though discount rates in the neutral condition were already high,” the authors reported.
“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,” they 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.”
Lerner and her co-authors contend that the 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 authors argue. “Fully understanding these processes may also help address the economic problems associated with Americans’ increasing reliance on credit cards.”
Jennifer Lerner is Professor of Public Policy and Management at the Harvard Kennedy School of Government as well as Director of the Harvard Laboratory for Decision Science. This inter-disciplinary laboratory, which she co-founded with two economists, draws primarily on psychology, economics, and neuroscience to study human judgment and decision-making.
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This research was supported by National Science Foundation Grants PECASE SES-0239637 and SES-0820441 to Jennifer S. Lerner and Grant SES-0820496 to Elke U. Weber.
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For more information about this study, please contact: Jennifer S. Lerner at jennifer_lerner@harvard.edu.
The research Abstract:
We hypothesized a phenomenon that we term myopic misery. According to our hypothesis, sadness increases impatience and creates a myopic focus on obtaining money immediately instead of later. This focus, in turn, increases intertemporal discount rates and thereby produces substantial financial costs. In three experiments, we randomly assigned participants to sad- and neutral-state conditions, and then offered intertemporal choices. Disgust served as a comparison condition in Experiments 1 and 2. Sadness significantly increased impatience: Relative to median neutral-state participants, median sad- state participants accepted 13% to 34% less money immediately to avoid waiting 3 months for payment. In Experiment 2, impatient thoughts mediated the effects. Experiment 3 revealed that sadness made people more present biased (i.e., wanting something immediately), but not globally more impatient. Disgusted participants were not more impatient than neutral participants, and that lack of difference implies that the same financial effects do not arise from all negative emotions. These results show that myopic misery is a robust and potentially harmful phenomenon.
Excerpt from the General Discussion:
...People typically make some of the most consequential choices of their lives while in emotional states. Love drives a decision to propose or accept marriage; anger drives a decision to strike someone; fear drives a decision to abandon one’s home in disaster. Sometimes a particular emotion holds inextricable links to a particular set of decisions. Consider, for example, the intense sadness one feels after the death of a family member and the numerous financial decisions that must be made to settle that person’s estate. The present findings may provide valuable insights into how to improve such consequential decisions. Our results suggest that individuals who are sad after the death of a family member might exacerbate their financial hardship by making intertemporal choices that favor immediate consumption more than is wise. Although the U.S. Federal Trade Commission has a “cooling-off rule,” giving individuals 3 days to cancel a sale, this rule excludes sales of real estate, insurance, and securities—exactly the sorts of sales one might engage in after the death of a family member, loss of employment, or a natural disaster. ...
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