by Optimistic thinking has long been touted as the pathway to happiness and well-being. However, new research from the University of Bath shows that excessive optimism may actually be associated with lower cognitive abilities, leading to poor decision-making and potentially detrimental outcomes for individuals, particularly in financial matters.
The study, published in Personality and Social Psychology Bulletin, found that individuals with high cognitive ability tend to be more realistic and pessimistic in their expectations about the future. On the other hand, those with lower cognitive abilities display an excessive level of optimism and a tendency to delude themselves.
Dr. Chris Dawson of the University’s School of Management explained that while it is challenging to accurately forecast the future, those with low cognitive ability are more prone to making errors in judgment, often driven by self-flattering biases. This suggests that individuals with higher cognitive ability are better equipped to override the automatic response of excessive optimism when making important decisions.
The implications of this research are particularly significant in the realm of financial decision-making. Unrealistically optimistic financial expectations can lead to excessive consumption, debt, and insufficient savings. It can also result in the failure of businesses started by optimists who believe they have a chance, despite the tiny odds of success.
The study, which analyzed data from a UK survey involving over 36,000 households, compared individuals’ expectations of their financial well-being with their actual financial outcomes. It revealed that those with higher cognitive ability had a 22% increase in the probability of realism and a 35% decrease in the probability of extreme optimism.
Dr. Dawson emphasized that the problem lies in the fact that humans are inherently primed to expect the best outcomes. While this positive thinking may have evolutionary benefits, it can negatively impact decision-making, particularly in important matters. Individuals need to be able to override this predisposition, and the research shows that those with higher cognitive ability are better able to do so than those with lower cognitive ability.
The findings challenge the cultural belief in the power of positive thinking. Unrealistic optimism is a common human trait, with individuals consistently underestimating the negative and overestimating the positive. Dr. Dawson suggests that it may be time to reexamine this belief and its implications for decision-making.
In conclusion, the research indicates that while optimism may be seen as a desirable trait, excessive optimism can be detrimental, especially when it comes to making important decisions. Those with higher cognitive ability are better equipped to balance optimism with realism, resulting in more informed and favorable outcomes.
