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February 27, 2022

Where your emotions can really get you into trouble

Can feeling sad lead to poor financial decisions? Probably, say researchers — largely because it makes you think short term, seeking immediate rewards rather than focusing on larger rewards you might realize down the road.

In one study, participants were shown one of three short video clips before being asked to make several  choices between receiving cash today and larger amounts at points in the future, ranging from one week to six months. They were told that some of them would actually be given the rewards they chose, so they should choose carefully.

One of the videos depicted the death of a boy’s mentor, another concerned an unsanitary toilet, and the third was about the Great Barrier Reef.

If participants in the sad condition always take less money for nearer events than further, it suggests that they don’t want to wait for future events. 

However, if they only take less money for immediate rewards but not for those where two weeks is the nearer event, it would suggest that sad people are biased to get something right now.

Sad participants settled for $37 today rather than $85 in three months’ time, but neutral participants demanded $56 today to give up a claim the same future pay-out. The same phenomenon was evident in follow up studies.

For the most part, sad people, it seems, wanted to get a reward right now, even if it meant giving up much more money in the future

We move into “present bias” when we want an immediate payoff — in the case of sadness we want to feel better — so we become impatient and ignore the greater benefits that come when we settle down and wait awhile.

You might, for instance, opt for a lump-sum payment today rather than a better pension down the road after a sudden job loss. But too much discounting of the future says more much about your emotional state, where you're behaving as if there's no tomorrow, than you may realize.

Do you think you've made some 'sad' decisions when it comes to money? Have things changed over time?

By Gordon Powers, MSN Money



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Gordon PowersGordon Powers

A long-time fund company executive, Gordon Powers now heads up the Affinity Group, a financial services consulting firm. Gordon was a personal finance columnist for the Globe & Mail for many years, has taught retirement planning...

Jason BucklandJason Buckland

The modern-day MC Hammer of money, Jason can often be seen spending cash that isn’t his with the efficiency of a Wilt Chamberlain first date. After cutting his teeth as a reporter for the Toronto Sun, he joined the MSN Money team with...