Is It Better to Be Optimistic? -- Financial Optimism and Well-Being

Posted: 7 Aug 2013 Last revised: 21 Nov 2016

See all articles by Jiayi Balasuriya

Jiayi Balasuriya

University of Hertfordshire - Business School; City University of London - Sir John Cass Business School

Yaz Gulnur Muradoglu

Queen Mary University of London; City University London - Sir John Cass Business School

Peter Ayton

City University London

Date Written: July 1, 2013

Abstract

This study investigates whether being financially optimistic has any benefits on objective and subjective well-being. We define financial optimism as the likelihood of a positive outcome relative to rational expectation in an individual’s future financial situation. We analyze data from the British Household Panel Survey from 1991. We found that optimism is negatively correlated with current financial wealth and total wealth. Optimists’ future financial wealth improves in a few years’ time, although their overall wealth level is not significantly higher than non-optimists in future. Financial expectation has positive correlations with current happiness and satisfaction and A posteriori optimism is negatively correlated with an increase in future happiness. The overall results indicate that the income and financial wealth of optimists are on the rise although optimists are not financially better off at the start. Being optimistic provokes an increase in financial wealth but its effect on increasing total wealth is very limited. One should not have unrealistic expectations on optimisms benefit and amplify too much what optimism can do. Financial optimism could be a delusion that respondents create in order to feel happy or satisfied with themselves. The warning here is that if an individual is financially optimistic, his future happiness might reduce due to the potentially low realizations.

Keywords: Financial optimism, Well-being, Psychology and financial decision making, Benefit of optimism

Suggested Citation

Balasuriya, Jiayi and Muradoglu, Yaz Gulnur and Ayton, Peter, Is It Better to Be Optimistic? -- Financial Optimism and Well-Being (July 1, 2013). Available at SSRN: https://ssrn.com/abstract=2307065 or http://dx.doi.org/10.2139/ssrn.2307065

Jiayi Balasuriya (Contact Author)

University of Hertfordshire - Business School ( email )

College Lane
Hatfield, Hertfordshire Al10 9AB
United Kingdom

City University of London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Yaz Gulnur Muradoglu

Queen Mary University of London ( email )

Francis Bancroft Building
Mile End Road
London, E1 4NS
United Kingdom

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
+44 20 7040 0124 (Phone)
+44 20 7040 8853 (Fax)

Peter Ayton

City University London ( email )

Northampton Square
London, EC1V OHB
United Kingdom

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