Is It Better to Be Optimistic? -- Financial Optimism and Well-Being
Posted: 7 Aug 2013 Last revised: 21 Nov 2016
Date Written: July 1, 2013
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
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