Highlights: August 11-17

What we loved reading this week, including: How to manage a micromanager, how your office clutter is influencing your work, and the underappreciated role of silence in daily life.

Rejection Increases Financial Risk-Taking and Gambling

How rejection influences our financial decision making

Rejection impacts us in many unexpected ways. (read 10 Surprising Facts About Rejection here). Other than the sharp emotional pain it elicits, rejection also causes surges in anger and aggression, it bruises our self-esteem, and it destabilizes our need to belong. Now a new series of studies found yet another way in which rejection can influence our unconscious thinking. The findings, presented at the American Psychological Association Annual Convention, indicate rejection can cause people to make riskier financial decisions and engage in gambling behavior (luckily, the convention was held in Hawaii this year and not Las Vegas).

Rod Duclos of Hong Kong University conducted multiple experiments. In the first, participants who were made to feel excluded chose higher risk strategies in a subsequent gambling study (i.e., if you win you get a higher payoff but you have much less chance of winning). A second study ruled out negative mood and sadness as the reason for their choosing riskier strategies. In other words, participants didn’t choose riskier strategies because they felt bad and simply didn’t care. But if so, why did they choose strategies with such lower chances of a payout (even if the payoff was much larger)?

A third study revealed that participants who were rejected chose riskier strategies with bigger payoffs because of how they perceived money. They believed that money was a tool for getting what you want in the world. Even though the strategy they chose was less likely to lead to a payoff, when it did, the larger payoff ($800) was seen as a way to get more control in their lives. Feeling rejected made participants feel as though they were at the mercy of social forces over which they had no control and they therefore chose a compensatory mechanism.

A fourth study confirmed these results by introducing a clever manipulation. Subjects were made to feel rejected as they had in the first three studies. They were then asked to complete a “reading comprehension” task that involved either a neutral article or an article about how ‘money is often mistakenly perceived as affording freedom and control in life’. Participants were then asked to choose their gambling strategies. Rejected subjects who read the neutral article choose the riskier gambling strategies (high but infrequent payoff), while rejected subjects who were “disavowed” of their belief that money affords control, chose less risky strategies (frequent but low payoff).  In other words, the tendency to take financial risks and to gamble after experiencing rejection is directly related to our wish to feel as though we have more control in the world.

In their final study, the team surveyed people in malls and parks about how often they felt socially excluded (rejected) and asked them about their financial habits. The more people reported feeling socially excluded the less financial investments they had in low risk financial platforms (such as interest yielding savings accounts), and the more they reported engaging in gambling on horse races and in casinos.

Implications for How We Make Financial Decisions

Research-wise, the studies are a great example of how blending psychological research in the ‘lab’ (the first four studies) and the ‘field’ (the fifth study/survey) can offer a more complete and comprehensive picture of the psychological phenomenon being investigated. As such, these findings have significant implications for how we make financial decisions:

1. It might be wise to delay important financial decisions after a break-up, a falling out with a friend, or other situations that elicit strong feelings of rejection.

2. Getting fired from a job can feel like a serious rejection. People often choose to spend their first weeks and months applying to jobs that have bigger payoffs but that they are much less likely to get. In the meantime, their bank accounts are steadily dwindling. While you should set your sights high, at least at first, you don’t want to get stuck searching for the top tier of positions for an unreasonable amount of time. Therefore, decide on a time limit for how long you plan to focus exclusively on more lucrative positions before you begin your job search. Begin to include some lower level positions in your search once you hit your designated deadline.

3. People going through a divorce can feel extremely rejected. The anger the rejection causes (in addition to that elicited by the circumstances) can lead them to engage in extended legal battles in which they fight to get as large a share of the finances as they can. When these battles are protracted, a person’s legal bills can take a significant bite out of the amount they would have gotten had they settled at an earlier point. In other words, their anger and need for control (or ‘revenge) can led them to gamble financially on the outcome. Be aware that your emotional pain, can lead you to choose a riskier strategy (of a protracted legal fight) that you might were calmer heads prevailing and that such fights/gambles can be difficult to disengage from once you find yourself in the thick of them.

View my short and quite personal TEDx talk about Psychological Health here:

For a complete step-by-step approach to managing the emotional wounds rejection inflicts, check out my new book, Emotional First Aid: Practical Strategies for Treating Failure, Rejection, Guilt, and Other Everyday Psychological Injuries.

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Copyright 2013 Guy Winch



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