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Financial statement-QA39
- March 21, 2018
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- Category: financial mangement QA
ABSTRACT
People base many decisions on affective fore-casts, predictions about their emotional reactions to future events. They often display animpact bias, over estimatingthe intensity and duration of their emotional reactions tosuch events. One cause of the impact bias isfocalism, thetendency to underestimate the extent to which other events will influence our thoughts and feelings. Another is people’sfailure to anticipate how quickly they will make sense oft hings that happen to them in a way that speeds emotionalrecovery. This is especially true when predicting reactions to negative events: People fail to anticipate how quickly they will cope psychologically with such events in ways that speed their recovery from them. Several implications are discussed, such as the tendency for people to attribute their unexpected resilience to external agents.
KEYWORDS—
affective forecasting; prediction; emotion; sense making Many cultures have myths in which people can make their wishes come true. The story of Aladdin and his lamp is best known to readers of the Arabian Nights (and to Disney fans); in Irish leg-ends, it is leprechauns who make wishes come true; whereas in Chinese fableitis an obliging dragon tha thas the head of acamel,the eyes of a hare, the neck of a snake, the claws of an eagle, and the ears of a buffalo (McNeil, 2003).Common to these myths is the notion that if people (perhaps with the help of a genie) could make their wishes come true, theywould achieve everlasting happiness. Sometimes, however,people are disappointed by the very things they think they want.Research on affective forecasting has shown that people routinely mispredict how much pleasure or displeasure future events willbring and, as a result, sometimes work to bring about events that do not maximize their happiness.These mispredictions can take a number of forms. People can be wrong about how positive or negative their reactions to future events will be, particularly if what unfolds is different from what they had imagined. Prospective dog owners might predict that Rover will bring nothing but joy because they picture a faithful companion who obediently fetches the newspaper each morninginsteadofanobstinatebeastwhochewsshoesanddemands6:00-a.m. walks in the freezing rain. Generally, however, humans areadept at predicting whether events are likely to be pleasant orunpleasant.Evenaratcanreadilylearnthatpressingonebarwillproduce a food pellet and another an electric shock and will votewith its paws forthe more pleasant option.People know that a rootbeer will be more pleasant than a root canal.People are less adept at predicting the intensity and duration oftheir future emotional reactions. Occasionally they underesti-mate intensity and duration; this may happen, for example,whenapersonisina‘‘cold’’emotionalstateatthetimeofpredictionandis trying to imagine being in a ‘‘hot’’ emotional state in the future.Satiated shoppers underestimate how much they will want icecreamlaterintheweek,andaddictswhohavejustinjectedheroinunderestimate how much they will crave the drug when they aredeprived of it later (Gilbert, Gill, & Wilson, 2002; Loewenstein,O’Donoghue, & Rabin, 2003).
THE IMPACT BIAS
More common than underestimating future emotional reactions,however, is the impact bias, whereby people overestimate theintensity and duration of their emotional reactions to futureevents—even when they know what the future event is likely toentail and they are not in a particularly ‘‘hot’’ or ‘‘cold’’ emotionalstate at the time of making their forecast. This error has been found repeatedlyinavarietyofpopulationsandcontexts.College students overestimated how happy or unhappy they would beafter being assigned to a desirable or undesirable dormitory (seeF ig. 1), people overestimated how unhappy they would be 2months after the dissolution of a romantic relationship, unten-ured college professors overestimated how unhappy they wouldbe 5 years after being denied tenure, women overestimated how unhappy they would be upon receiving unwanted results from a Address correspondence to Timothy D. Wilson, P.O. Box 400400, 102Gilmer Hall, University of Virginia, Charlottesville, VA 22904-4400,e-mail: twilson@virginia.edu, or to Daniel Gilbert, Department of Psychology, William James Hall, 33 Kirkland Street, Harvard Uni-versity, Cambridge, MA, 02138, e-mail: gilbert@wjh.harvard.edu.
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CURRENT DIRECTIONS IN PSYCHOLOGICAL SCIENCE
Volume 14—Number 3131Copyright R 2005 American Psychological Society at UNIV OF MIAMI on August 18, 2010 cdp.sagepub.com Downloaded from pregnancy test, and so on (see Loewenstein et al., 2003; Mellers& McGraw, 2001; Wilson & Gilbert, 2003). The impact bias isimportant because, when deciding what to work for, people needto predict not only the valence (positivity or negativity) of theiremotional reactions (‘‘Will I feel good or bad?’’), but also theintensity and duration of these reactions (e.g., ‘‘Will I feel goodfor a few seconds or a few months?’’). If consumers overestimatethe intensity and duration of the pleasure they will get frompurchasing a new car, for example, they may be better offspending their money in some other way.One cause of the impact bias isfocalism, the tendency to overestimatehowmuchwewillthinkabouttheeventinthefutureand to underestimate the extent to which other events will in-fluence our thoughts and feelings (Schkade & Kahneman, 1998;Wilson, Wheatley, Meyers, Gilbert, & Axsom, 2000). Whenfootball fans think about how they will feel after their favoriteteamwinsanimportantgame,forexample,theyarelikelytofocusexclusivelyonthegameandneglecttothinkaboutthemanyotherthings—such as upcoming deadlines at work, the need to get thecar fixed, or a visit from old family friends—that will influencetheir thoughts and feelings. Focalism is a straightforward and, wesuspect, quite common source of the impact bias. It can be cor-rected, to some degree, by asking people to think carefully aboutthe many other events that will demand their attention in thefuture; studies have found that this exercise tempers people’spredictions about the impact of a victory or loss by their favoritefootball team on their happiness (Wilson et al., 2000).
SENSE MAKING AND PEOPLE’S IGNORANCE OF IT
Another cause of the impact bias is that forecasters fail to rec-ognize how readily they will make sense of novel or unexpectedevents once they happen. Research across a variety of fieldssuggests that such events trigger four processes in sequence:attention, reaction, explanation, and adaptation.First, people are especially likely to attend to events that areself-relevant but poorly understood. For example, a studentwho unexpectedly receives an on an important exam willinitially think about little else second, people react emotionally to self-relevant, poorlyunderstood events. The student who receives an unexpected will initially feel overjoyed.Third, people attempt to explain or make sense of self-relevant, poorly understood events. For example, the overjoyed student will begin to search for reasons why she received a better-than-expected grade.Fourth, by making sense of events, people adapt emotionally to them. Once the student has explained the reasons for her grade, she will think about her achievement less and experience less happiness whenShe doest hink about it.The eventwill come to be seen as more normal and inevitable then itactually was, and hence it will lose some of the emotionalpower that it had when it still seemed extraordinary.These four processes may seem relatively uncontroversial topsychologists, but research suggests that people neglect to take
them into account when forecasting their future emotions. Inparticular, because the processes by which people explain ormake sense of unexpected events are often quick and non conscious, people do not recognize beforehand that such processeswill occur; thus they do not consider how quickly their tendencyto explain events will reduce the impact of those events. When astudent tries to predict how she will feel if she receives an un-expected she has little trouble imagining herself feelingoverjoyed but a lot of trouble imagining herself explaining theevent in a way that makes it seem ordinary and predictable.The Pleasure of Uncertainty About Positive EventsIf making sense of positive events reduces the duration of thepleasure they cause, then inhibiting the sense-making processshould prolong people’s pleasure. In one study, for example,students who were studying in a library were unexpectedly givenan index card with a dollar coin attached, and results showed thatthey were in a better mood 5 minutes later if the text on the cardmade itdifficult rather than easy for them toexplainwhy they had
received the money. Yet people did not anticipate this effect; in
fact, ‘‘forecaster’’ participants predicted that they would be
happier if the card made explanation easy rather than difficult
(Wilson, Centerbar, Kermer, & Gilbert, 2005). People do not
realize how quickly they will make sense of unexpected positive
1234567DesirableUndesirableDesirability of Dormitory Happiness Rating Predicted ActualFig. 1.College students’ predicted and actual levels of happiness after dormitory assignments. Participants predicted what their overall levelof happiness would be a year later if they were randomly assigned to a de-sirable or undesirable dormitory(on a 7-pointscale, with15unhappyand75happy). Students predicted that their dormitory assignment would have a large positive or negative impact on their overall happiness(solid bars);but a year later,those living in undesirable and desirable dormitorieswere at nearly identical levels of happiness (open bars). Adapted from Dunn, Wilson, & Gilbert (2003).132Volume 14—Number 3Affective Forecasting at UNIV OF MIAMI on August 18, 2010cdp.sagepub.com
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