investment

Unlucky in love? Don't make snap financial decisions

Jan. 22, 2013 at 9:16 AM ET

If you’ve just had a battle with your best friend or been dumped by your betrothed, now is not the time to make investment decisions, a new study suggests.

Researchers have found that when people feel socially isolated they’re more likely to make risky financial choices, according to the study published in the Journal of Consumer Research.

And while risky bets sometimes pay off, they can also be disastrous, says the study’s lead author Rod Duclos, an assistant professor of marketing at the Hong Kong University of Science and Technology School of Business and Management.

“These findings should come as a word of caution to consumers,” Duclos says. “Because feelings of social exclusion can shift their idiosyncratic risk-to-benefit ratio, consumers may [want to] choose to delay important financial decisions, such as choosing a mortgage, a retirement scheme, or stock portfolio following a breakup or a fallout with friends.”

Why would being dumped cause us to make risky bets?

It all comes down to the relationship between social isolation and money, Duclos says.

People often crave popularity, he explains. When they can’t have that, they turn to financial success as a proxy. In other words, if you’re unhappy because you’re unpopular, you’ll seek succor in money.

To prove this, Duclos and his colleagues ran several experiments using college students as their guinea pigs.

In one experiment, 59 study volunteers played an online ball tossing game, called Cyberball. The game was played by groups of three participants who would throw a virtual ball back and forth. To look at the impact of social isolation, the researchers manipulated the game so that some participants would get the ball tossed to them only rarely.

The strategy seemed to work. On a questionnaire after the game, volunteers were asked to rate between 1 and 5, how “rejected” or “left out” they felt. Sure enough those who hardly ever got to play said they felt very rejected and left out.

The second part of the experiment gave the volunteers a choice between a relatively safe bet – an 80 percent chance of winning $200 with a 20 percent chance of winning nothing – and a risky bet that promised greater reward – a 20 percent chance of winning $800 and an 80 percent chance of winning nothing.

Those who felt left out were far more likely to choose the risky, but potentially more lucrative bet.

To make sure that their experiments weren’t biased by the age of the study volunteers, the researchers also did a survey of people they met at malls, subway stations, and parks in Hong Kong. Like the student volunteers, those who felt more socially isolated were the ones who were more drawn to risky bets, like horse-racing, instead of safer ones like savings accounts.

Ultimately, Duclos says, people just need to recognize that social isolation has an impact – and they should postpone making any major financial decisions till they’ve recovered from a breakup or argument with friends.

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