Looking on the (B)right Side of Life: Cognitive Ability and Miscalibrated Financial Expectations.

ABSTRACT: It is a puzzle why humans tend toward unrealistic optimism, as it can lead to excessively risky behavior and a failure to take precautionary action. Using data from a large nationally representative U.K. sample (N=36,312), our claim is that optimism bias is partly a consequence of low cognition-as measured by a broad range of cognitive skills, including memory, verbal fluency, fluid reasoning and numerical reasoning. We operationalize unrealistic optimism as the difference between a person's financial expectation and the financial realization that follows, measured annually over a decade. All else being equal, those highest on cognitive ability experience a 22% (53.2%) increase in the probability of realism (pessimism) and a 34.8% reduction in optimism compared with those lowest on cogniti

SUBMITTER: Dawson C 

PROVIDER: S-EPMC12276405 | biostudies-literature | 2025 Sep

REPOSITORIES: biostudies-literature