Feeling sad? Refrain from money decisions

If you feeling sad, postpone financial decisions for a brighter state of mind

Sad Girl
When sad, money decisions are skewed

Who knew sadness could cost an arm and a leg? New research from the Harvard Kennedy School of Government and Columbia University explored how impatience brought on by sadness can in turn cause substantial financial loss.

Using the data collected the researchers found that when subjects were randomly assigned to view a video that induced sadness they showed impatience and myopia; their financial decisions got 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.

The researchers reported, 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 even though real money was at stake. 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.

Your emotions affect not only your decisions but also—to an astonishing extent —your pocket. So think twice before swiping that credit card or making an investment when you’re feeling blue.



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