Financial decisions on an empty stomach
I think we all know by now what tends to happen when we visit the supermarket on an empty stomach.
If you are browsing the supermarket aisles when hungry, it can result in a trolley or basket full of less than sensible purchases.
But what happens when the same hungry state is applied during times of making financial decisions?
Thankfully, scientists have been pondering this question, and they have come up with an answer.
The new study from the University of Dundee, published in the journal Psychonomic Bulletin & Review, concluded that making any decision while hungry can result in making poorer long-term choices.
According to the study author, Benjamin Vincent:
This work fits into a larger effort in psychology and behavioural economics to map the factors that influence our decision making. This potentially empowers people as they may foresee and mitigate the effects of hunger, for example, that might bias their decision making away from their long term goals.
The study considers a heuristic known as ‘delay discounting’.
This says that we tend to prefer smaller rewards today instead of more substantial rewards tomorrow.
You might have heard of the famous marshmallow test, where children who could resist the temptation of eating one marshmallow immediately, to receive two marshmallows as a reward for their patience, tended to have better life outcomes.
Patience is, indeed, a virtue.
From a financial perspective, delay discounting tells us that we often prefer to receive £100 now instead of getting £200 later.
But back to feeling hungry and its impact on our decision making.
The researchers asked study participants whether they would prefer food, money or music now, or a greater amount of the same in the future.
One group of participants were hungry after fasting for 10 hours. The other study group were well fed.
Unsurprisingly, feeling hungry made people less likely to want to wait for more food in the future; they wanted it now.
It’s the translation of this result when it comes to money that we found especially interesting.
Hungry participants were prepared to wait 40 days to receive double the money, compared to a 90 day wait for those who had recently eaten.
The researchers concluded there was a carryover effect of hunger on money, which was moderately strong.
Being hungry focuses our minds on short-term rewards, across multiple areas, including food and money.
What this means for making financial decisions is simple; eat first!
If you’re going to choose a mortgage, make decisions about your retirement income, or change the allocation of your investment portfolio, doing so on an empty stomach could result in making poorer long-term choices.Being hungry focuses our minds on short-term rewards, across multiple areas, including food and money. Click To Tweet