New research suggests there’s a dark side to hope

Hope is generally considered a positive emotion. But new research provides evidence that hope can have negative financial consequences. The findings, published in the Journal of Behavioral Decision-Makingindicate that more optimistic individuals have a greater tendency to hold losing stocks.

“I’m interested in hope because I’ve found there’s too much uncertainty in my day-to-day decisions, and I’ve worked miracles on my path just because I hope so strongly,” said said study author Siria Xiyueyao Luo, who holds a Ph.D. student in the marketing department of the Vrije Universiteit Amsterdam.

“So I started to get interested in the motivational component of hope. Soon after, however, I discovered the negative impact of hope that sometimes makes it hard for people to give up on a “ losing situation”, like holding losing stocks. I lost quite a bit of money myself (as a poor PhD student), because I wouldn’t let my hope die, even the stock doesn’t seem to be worth the hard to invest.

The researchers recruited 470 UK citizens from Prolific, who were presented with a scenario in which they had invested £5,000 in Stock X a year ago, buying 1,000 shares at £5 per share. Participants were told that the price of X stock had fallen to £1 per share and asked if they would hold the stock or sell it.

Those who scored higher on hope measures were more likely to hold losing stocks.

In a series of four additional studies, which included a total of 2,489 participants, researchers found that the link between hopefulness and the propensity to keep losing stocks remained significant even after controlling for stock-seeking tendencies. risks, and that the hope of breaking even (rather than the desire for financial gain) motivated people to hold onto their losing stocks.

“I was surprised to find that even when people lose, they still have a strong hope of making money (therefore winning) from that stock. The only difference is that they have a particularly strong hope to break even, which forced them to hold on to the losing stocks,” Xiyueyao Luo told PsyPost.

It was also found that when people’s hope of breaking even dwindled (for example, when they were told that there was “little chance that markets would recover within three years from come”), their tendency to hold onto losing stocks diminished.

In addition, people who held shares on behalf of others tended to have less hope of breaking even, and therefore were less likely to continue losing shares than people who held actions for themselves. Therefore, holding stocks for others appeared to reduce the tendency to hold losing stocks.

“Interestingly, this hope of breaking even can easily be dimmed/dimmed if you take a third-person perspective,” Xiyueyao Luo said.

But the study, like all research, has some caveats.

“Our research is scenario-based, so the results might not be applicable to different life situations,” Xiyueyao Luo noted. Additionally, “there are other factors that can cause people to latch onto losing stocks that investors might want to notice. For example, investment experience and financial knowledge help investors be less swayed. by hope.”

“Invest your money based on real value (so do your research), but not on your hope,” Xiyueyao Luo advised.

The study, “A Dark Side of Hope: Understanding Why Investors Cling to Stock Loss,” was authored by Siria Xiyueyao Luo, Femke van Horen, Kobe Millet, and Marcel Zeelenberg.

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