Why Sad People Make Incredibly Poor Investors

derrick rose crying

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The next time you’re feeling blue, you might want to save any big financial decisions for happier times down the road.Researchers from Columbia University have found a strong link between sadness and poor financial decision-making.

In an experiment, groups of participants were asked to answer questions about different investment options –– for example, would they favour an investment that produced quick gains straightaway, or wait to invest if they had the potential to earn more over a longer time frame?

The twist was that some participants watched a tear-jerker video before the Q&A, while a control group showed up in whatever mood they happened to be in. 

“Across three experiments, the median sad participant valued future rewards (i.e., those delayed by 3 months) 13 per cent to 34 per cent less than did the median neutral-state participant,” the study says. “These differences emerged even though real money was at stake and even though discount rates in the neutral condition were already high.”

But, why? 

Blame it on sadness-induced impatience. Scientists like to call it “myopia” or “present bias,”  which are two mindsets found in people who give up the chance to make more money in the long-term in favour of instant gratification. 

In his book Save More Tomorrow, behavioural finance economist Shlomo Benartzi goes into detail about the dangers of myopic thinking.

“Seduced by temporal myopia in their younger years, many people get around to saving seriously for their retirement far too late in their career, in their forties and fifties in many cases, which greatly reduces the amount of money they will have available for their retirement,” he writes.

Don’t Miss: 21 ways rich people think differently > 

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