Sadder But Wiser? Not When It Comes to Money
Sadness and wisdom often go hand-in-hand according to research. A number of studies support the idea that depressed people have a more accurate perception of reality than those who are happy and optimistic. This idea was initially called the sadder-but-wiser effect, and it’s now known as depressive realism.
Researchers Lauren Alloy and Lyn Abramson coined the term sadder-but-wiser in their 1979 study, in which they looked at depressed and non-depressed undergraduates. The students were placed in a room with an arrangement of lights and buttons and were intermittently asked to choose to either push a button or refrain from pushing the button. A green light was scheduled to come on every other time the students were asked to choose, and it came on regardless of the students’ choice. At the end of the experiment, the students were asked to estimate how much control they had over the light. Alloy and Abramson found that non-depressed individuals overestimated the degree of control they exercised, while depressed individuals estimated their degree of control accurately. Non-depressed students evidenced what Alloy and Abramson termed an “illusion of control” and reported an inflated sense of control. Their estimations were inaccurate because they succumbed to the illusion that they had much more control than they actually did. Depressed students, on the other hand, judged things much more accurately: thus, the sadder-but-wiser effect.
Most studies that examine the sadder-but-wiser effect focus on what’s known as the outcome-density effect: if something is likely to occur, non-depressed people overestimate that likelihood. They think the chance of something happening is much greater than it actually is. Depressed people have a knack for not succumbing to the outcome-density effect. They don’t become misled like non-depressed people do.
Research shows that depressive realism is not just seen in situations where people estimate control or probability; it’s also seen in social situations. Peter Lewinsohn conducted a study where he had depressed and non-depressed individuals socially interact with a group of people. The individuals then rated themselves on their social interaction skills, and the members of the group rated the individuals. He found that depressed individuals showed much more accurate self-perception: they saw themselves as the group saw them. However, non-depressed individuals saw themselves more positively than others saw them.
Other studies support this idea of depressive realism, and yet, it seems almost counter-intuitive that depressed people would have an advantage over happier people. In a new study, researchers set out to examine whether this sadder-but-wiser advantage holds true when it comes to financial matters. They wanted to answer the question: do sadder people make wiser financial decisions?
To do this, they looked at intertemporal financial choices, choices that require people to choose between a sooner (usually smaller) reward and a later (usually larger) reward, i.e. should I spend this money now, or save so I can spend more later? Should I take $10 now, or wait and get $20 later? Studies that look at these choices show that most people are extremely impatient; they want money immediately, and they’re not likely to hold out until the future. Would sad people be less impatient, and they would be willing to delay instant gratification for a bigger payoff down the line?
Researchers split participants into three groups and induced emotions in each group by having them watch a video. To induce sadness, researchers showed a clip about the death of a boy’s mentor; to keep people in a neutral state, they showed a clip about the Great Barrier Reef. They also induced disgust in the third group by showing a clip of an unsanitary toilet, because they wanted to see if the sadder-but-wiser hypothesis could be applied to negative emotions in general. Does a being in an overall negative mood affect judgment? Or is this affect exclusive to sadness?
After watching the clips, participants made a series of choices between receiving money immediately and more money in the future.
They found that sad participants made hasty and less sound monetary decisions because being sad causes people to become impatient. Sad participants were more impatient than both neutral participants and disgusted participants. They were more willing to forego larger rewards in the future to acquire smaller rewards at the present. The average sad participant was willing to settle for $4 that day instead of $100 in a year, while the average neutral participant required $19 to settle. Disgusted participants required an amount very similar to neutral participants (showing that only sadness, not simply a generalized negative mood, affects judgment). The average sad participant was willing to accept 35% to 79% less money immediately in order to avoid waiting for a future payoff.
As part of the experiment, researchers also had all participants write down their thoughts. Sad participants listed more impatient thoughts than neutral or disgusted participants, and generated impatient thoughts earlier than the other participants.
The bottom line: sadness doesn’t make people wiser when it comes to finances. Sad people want instant gratification, and consequently, they lose money. This study is the first to look at the economic implications of depressive realism, and it shows that when it comes to time and cash, happiness pays and sadness costs.
Olivia Roat is a reporter for GoStrengths.com, a site dedicated to preventing teen depression.