Self-Control, Financial Well-Being, and Motivated Reasoning : Essays in Behavioral Finance

Abstract: The objective of this thesis is to improve our understanding of how individual differences in intuitive and analytic decision making are associated with people’s behavior as well as their well-being. The first three essays investigate, in turn, how self-control—a typical System 2 driven ability—correlates with financial behavior, financial well-being, and affective forecasting ability. The fourth essay leverages an experimental design, in which a randomized treatment attempts to inhibit the use of System 2 processing by individuals by setting them under time pressure, while measuring how they interpret numerical information.The first essay, Does Self-Control Predict Financial Behavior and Financial Well-Being?, describes how variation in self-reported individual differences in self-control, optimism and deliberativeness predicts financial behavior and financial well-being. Data was collected by means of an online survey distributed to a representative, adult Swedish sample. Results indicate that individuals with better self-control were more likely to engage in sound financial behaviors, were less anxious about financial matters, and felt more secure in their current and future financial situation than individuals displaying lower levels of self-control.The second essay, Subjective Self-Control but Not Objective Measures of Executive Functions Predicts Financial Behavior and Well-Being, is a follow-up study of the first essay. Apart from using the same self-reported measures of self-control, optimism, and deliberativeness as essay one does, this analysis additionally includes an extensive test battery of objective performance measures of executive functions and intelligence. Findings suggest that, while self-reported self-control predicts both financial behavior and subjective financial well-being, neither of the executive functions, nor intelligence do so. This indicates that an ability to form good habits and avoid temptation is more important for sound financial behavior and financial well-being than actual inhibitory control.The third essay, Better Self-Control Does Not Imply Fewer Affective Forecasting Errors, explores whether individual-level differences in self-control can explain observed variation in affective forecasting ability. Moreover, it assesses whether participants with strong self-control are more likely to make “optimal choices” in an intertemporal choice task: i.e. choices that maximize their own expected happiness. To test this, the study leveraged a laboratory experiment with a student sample in Linköping and Stockholm. Study results uncover no evidence of self-control predicting affective forecasting ability. Equally, self-control seemingly had no effect on the probability of individuals’ choosing happiness maximizing options.The fourth essay, Motivated Reasoning, Fast and Slow, investigates whether prior beliefs may hinder individuals from interpreting information about immigration and gender quotas correctly: a process commonly referred to as motivated reasoning. In general terms, motivated reasoning can be conceptualized as an intuitive or analytic process. Testing the prevalence of this form of sense-making, we ran an online experiment where half the respondents were tasked to interpret numeric information under time constraints, and the rest without said constraints. Findings provide clear evidence of the existence of motivated reasoning with regards to issues of both immigration and gender quotas. Numeric ability seemingly reduced the probability of individuals to engage in motivated reasoning, while time pressure had no effect on said likelihood. Hence, results suggest that motivated reasoning is an intuitive, rather than an analytic process.