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The belief in optimism as a key to happiness and good health has long been a prevalent notion. However, recent research from the University of Bath has revealed an unexpected consequence of excessive optimism – a potential link to poorer decision-making, particularly in financial matters.
The study, led by Dr Chris Dawson from the University’s School of Management, highlighted that excessive optimism is associated with lower cognitive abilities across various domains such as verbal fluency, fluid reasoning, numerical reasoning, and memory. Conversely, individuals with higher cognitive ability tend to exhibit more realistic and even pessimistic expectations about the future.
Dr Dawson explained, “Humans might be predisposed to expect the best outcomes, but individuals with higher cognitive abilities are better equipped to override this automatic response, especially in crucial decision-making scenarios.”
The research pointed out that planning and decisions based on overly optimistic beliefs often result in poor outcomes, notably in financial choices related to employment, investments, savings, or any decisions involving risk and uncertainty. Unrealistically optimistic financial expectations were observed to lead to increased levels of consumption, debt, insufficient savings, and even failed business ventures.
The study, titled “Looking on the (B)right Side of Life: Cognitive Ability and Miscalibrated Financial Expectations,” analyzed data from a UK survey involving over 36,000 households. It found that individuals with higher cognitive abilities were 22% more likely to exhibit realism and showed a 35% decrease in extreme optimism compared to those with lower cognitive abilities.
Dr Dawson emphasized, “The pervasive nature of unrealistic optimism can negatively impact decision-making, particularly in critical choices. This research underscores the importance of overriding this bias, with those possessing higher cognitive abilities exhibiting better control over such tendencies.”
Reflecting on the entrenched concept of ‘positive thinking’ in society, Dr Dawson suggested revisiting this belief for a more balanced perspective, highlighting that positivity might sometimes lead to adverse outcomes.
The findings underscore the need for a more nuanced understanding of the interplay between optimism, cognitive abilities, and decision-making, especially in crucial life choices.
Please note that the research is ongoing, and its implications may require further exploration and analysis.
