Scientists from the University of Bath (UK) found a connection between financial optimism (overestimating current and future income, underestimating the likelihood of events that negatively affect financial well-being) and lower cognitive abilities. results published Personality and Social Psychology Bulletin (PSPB).
The research used data from the Understanding Society, a large annual survey of around 36,312 Britons covering the period from 2009 to 2021. Participants answered questions about their financial situation and expected income and expense levels.
The volunteers’ cognitive abilities were then assessed using appropriate tests. Indicators of memory status, speech fluency, thinking fluency and coherence, and counting ability were taken into account. Analysis of the results showed that people with higher cognitive ability were less likely to be overly optimistic about their financial future. On the contrary, they were more likely to have realistic or even pessimistic expectations and were aware of the risks of having to spend large amounts of money in the event of divorce or an unexpected deterioration in their health.
Volunteers with impaired cognitive abilities were, on average, quite optimistic about their financial future. They tended to overestimate future income and underestimate expenses. It was also found that this relationship continued after controlling for factors such as education level. The researchers suggested that the relationship between cognitive ability and financial optimism may not be entirely due to good education and high financial literacy.
The study’s authors added that the human mind analyzes information using two systems: intuitive, fast-acting, and analytical, slow-acting. People with higher cognitive abilities are assumed to have a strong ability to engage the analytical system; This allows them to critically evaluate automatic judgments and decisions produced by intuitive thinking.
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