- Optimism, specifically in financial matters, may be the result of low cognitive ability, according to a new paper.
- The study is based on data from over 36,000 people in the U.K.
- The study finds intelligent people do better in money matters because they are realistic rather than optimistic when making plans.
Positive thinking and optimism are often associated with success in life. However, a new study from the University of Bath in the U.K. suggests that they are signifiers of low cognition, since they frequently lead to poor decision-making, specifically in the realm of finance.
The study finds that people with the highest cognitive ability are 22% more likely to be realistic (pessimistic) in financial planning, with a 34.8% reduction in optimism compared to people of low cognitive ability.
The study suggests that optimism bias leads people to anticipate more positive outcomes than they should reasonably expect in business planning, investing, and other fiscal activities. The result is loss of funds, debt, and business failures.
Optimism may be little more than a side effect of low cognitive power, according to the study.
Using data from the nationally representative annual U.K. longitudinal survey Understanding Society, the authors of the study analyzed data from 36,312 individuals. Participants responded on multiple occasions to questions regarding a wide range of topics, including labor market activity, household dynamics, as well as their personality, attitudes, and opinions.
The cognitive ability of respondents was based on measurements of various cognitive skills, including verbal fluency, memory, numerical reasoning, and fluid reasoning.
The study is published in the Personality and Social Psychology Bulletin.
Psychologist Dr. Andrew Cuthbert questioned the primary hypothesis of the study: that optimism is a byproduct of low cognition: “I have some concerns as someone who is trained in research but focuses on practice.”
“I have regularly done cognitive…
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