Mood Impacts Loss Aversion & Financial Decisions
Friday, November 4th, 2011
Researchers at Arizona State University have found that our mood or frame of mind can impact how averse we are to losses. This in turn biases how we make basic financial decisions. Its the preference for a bird in the hand versus two in the bush.
In the study subjects were put in both a mating and protection frame of mind and revealed a shift in loss aversion with some gender differences.
“For men in a mating frame of mind, loss aversion completely disappeared and they became more focused on wins than losses. For women, on the other hand, mating motivation led them to be even more loss averse, to focus less on possible gains and even more on the pain of loss.”
The researcher suggest that such biases are not irrational but reflect a deep logic rooted in evolution. Women have a bigger stake in mating because they bear the children.
No matter, the research illustrates the central importance of understanding “frame of mind” or think-and-feel and the role it plays in determining important outcomes.
