Saturday, November 10, 2007

To Build Wealth, Use Positive Thinking

In his Science Journal column (subscription), The Wall Street Journal's Robert Lee Hotz reports on recent studies suggesting that our brains are built to look on the bright side.

Research by economists at Duke indicates
that optimism pays, at least when applied in moderation:
Optimists, the Duke finance scholars discovered, worked longer hours every week, expected to retire later in life, were less likely to smoke and, when they divorced, were more likely to remarry. They also saved more, had more of their wealth in liquid assets, invested more in individual stocks and paid credit-card bills more promptly.

Yet those who saw the future too brightly -- people who in the survey overestimated their own likely lifespan by 20 years or more -- behaved in just the opposite way, the researchers discovered. Rather than save, they squandered. They postponed bill-paying. Instead of taking the long view, they barely looked past tomorrow. Statistically, they were more likely to be day traders. "Optimism is a little like red wine," said Duke finance professor and study co-author Manju Puri. "In moderation, it is good for you; but no one would suggest you drink two bottles a day."
In only one profession does optimism seem a drawback: The law. Pessimistic law students at UVa "got better grades, were more likely to make law review and, upon graduation, received better job offers."

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