The Financial Costs of Sadness

Jennifer S. Lerner, Ye Li and Elke U. Weber. (2012). The Financial Costs of Sadness. 7/0956797612450302 Psychological Science published online 13 November 2012. DOI: 10.1177/0956797612450302

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 sadstate 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: 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. Instead, compared with neutral emotion, sadness—but not disgust—made people more myopic, and therefore willing to forgo greater future gains in return for instant gratification. These experiments involved almost 600 subjects at two different laboratories; used experimental designs that allowed causal conclusions; applied precise, widely accepted, and quantifiable normative standards; incorporated a comparison negative emotion (disgust); provided meaningful motivations (i.e., money) for participants to optimize choice outcomes; and demonstrated a mediational pathway. Given the number of societal problems resulting from a “need it now” mentality, these results may inform not only theories of emotion and financial decision making, but also powerful interventions for optimizing decisionmaking environments (Thaler & Sunstein, 2008).

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