It's ok to think in a bad way: How state optimism and pessimism influence risk‐taking

Abstract

AbstractGovernment and public policy makers are facing an important issue on how to balance between economics and consumers' well‐being. Thus, the current research proposes an important factor to help understand more on consumers risk‐taking in investment. Trait optimists typically expect bright outcomes, whereas trait pessimists usually expect gloomy ones. However, the present research qualifies these generalizations. This current research proposes that optimism and pessimism can also be temporarily changed and cause different impact comparing to trait optimism and pessimism. Four studies showed that state optimists and pessimists differ in their expectations of success in a situation in which outcomes are purely a matter of chance or skills. Specifically, state optimists invest more in risky options when they believe that the investments are chance‐based, whereas state pessimists invest more when they believe the investments are skill‐based. These effects were due to their beliefs that the outcome is due to chance or skills. Additionally, we found that the effect will be moderated by individuals' locus of control.