Friday, November 02, 2007

The economic power -- and pitfalls -- of positive thinking

Public release date: 29-Oct-2007
Contact: Laura Brinn
Duke University

DURHAM, N.C. – People who are optimistic are more likely than others to display prudent financial behaviors, according to new research from Duke University’s Fuqua School of Business.

But too much optimism can be a problem: people who are extremely optimistic tend to have short planning horizons and act in ways that are generally not considered wise.

Optimism indeed relates to a large number of behaviors, they found. In small doses optimism can lead to wise decision making, but extreme optimists “display financial habits and behavior that are generally not considered prudent,” the authors wrote.

Puri and Robinson find that optimists:

Work longer hours;
Invest in individual stocks;
Save more money;
Are more likely to pay their credit card balances on time;
Believe their income will grow over the next five years;
Plan to retire later (or not at all);
Are more likely to remarry (if divorced).

In comparison, extreme optimists:

Work significantly fewer hours;
Hold a higher proportion of individual stocks in their portfolios, and are more likely to be day traders;
Save less money;
Are less likely to pay off their credit card balances on a regular basis;
Are more likely to smoke.

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