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The price of sadness

23 November 2012

We don’t deal with well with sadness in this modern world. “Put on a happy face” is advice we readily offer ourselves and others and “positivism” is virtually an industry these days. The virtues of an optimistic, positive frame of mind are undoubted but that does not mean that sadness does not have its place. At certain times and places in life sadness is the only authentic response, but that does not mean it is without dangers and downsides. In fact, according to a new Harvard study, when you are sad is not a good time to be making financial decisions.

The experiment involved subjects being randomly assigned either to watch a video that induced sadness, or to not watch such a video. All subjects then took part in a “game” that involved them making financial decisions that would really impact significantly how much money they would receive.

Those people who had been induced to feel sadness tended to make decisions that would make them more money in the short term but less in the long term. All of the “sad” subjects valued the higher rewards to be gained by waiting between 13 and 34 per cent less than subjects in the “neutral” group. This is what is called “present bias”. It might result from needing a “pick-me-up” in the short term, or not feeling connected to possible futures. Whatever the reason, the sad people ignored the greater gains that would have resulted from waiting.

As the researchers point out, this kind of short-sightedness that sadness causes might be responsible for phenomena like the increase in credit card debt in the United States in the wake of the GFC. Living on credit is not a good long-term option, but perhaps in the sadness of job and home loss rational long-term decisions are less likely to be made. Sheer financial imperatives might also play a role, but the possibility of the role of sadness is intriguing.

It seems frivolous to suggest it but should people be asked about their state of mind before they are allowed to apply for credit or even purchase from a “once in a lifetime closing down sale”? It might sound a bit too Orwellian to start proscribing what people can do based on their state of mind but for your own self it would be wise to do your own “emotional checks” on yourself while institutions do their “credit checks”. Waiting until you are in a neutral or positive emotional state before you make big life decisions might be a wise thing.