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October 30, 2007The Economic Power -- and Pitfalls -- of Positive Thinking |
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From EurekAlert! - Breaking News: People who are optimistic are more likely than others to display prudent financial behaviors, according to new research from Duke University's Fuqua School of Business. But too much optimism can be a problem: people who are extremely optimistic tend to have short planning horizons and act in ways that are generally not considered wise. Manju Puri and David Robinson, professors of finance at Duke, report in the October 2007 issue of the Journal of Financial Economics that the differences between optimists and extreme optimists provide important insights into the interaction between psychology and economic and lifestyle choices. Puri and Robinson developed a novel method to assess individuals' levels of optimism, drawing on data from the Federal Reserve Board's Survey of Consumer Finance (SCF), a triennial assessment of U.S. families' financial and demographic information. Although the SCF does not ask about optimism directly, it does ask respondents how long they expect to live. It also collects demographics, and health-related information--the same sort of information that actuaries use to estimate life expectancy. The Duke researchers combined these data to determine participants' statistical life expectancies. Then they compared the statistical and self-reported life expectancies and categorized anyone who expected to live longer than the data predicted as an optimist. "The differences between optimists and extreme optimists are remarkable, and suggest that over-optimism, like overconfidence, may in fact lead to behaviors that are unwise," said Puri.
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