The Science of Money Fear: Why Not Looking Feels Safer — and What the Data Shows

TEST_YOURSELF · How well do you know this science?

1. 01 What is the 'ostrich effect' in the financial research literature?

   Panic-selling assets the moment markets fallSelectively avoiding financial information when you expect it to be badHoarding cash instead of investing itCopying whatever other investors are doing

   Galai and Sade coined the term in 2006 for avoiding apparently risky financial situations by pretending they don't exist; Karlsson, Loewenstein and Seppi (2009) formalized it as selective attention — monitoring information more after good preliminary news and less after bad. source ↗

2. 02 In the 'Financial Attention' study of daily retirement-account logins, what happened after market declines?

   Logins spiked as investors anxiously checked their lossesLogins stayed flat — market moves didn't affect attentionLogins fell by 9.5% — investors looked away from bad newsOnly new investors stopped logging in

   Sicherman, Loewenstein, Seppi and Utkus (2016) found account logins fell by 9.5% after market declines, and attention was also lower when the VIX volatility index was high — large-scale behavioral evidence of the ostrich effect. source ↗

3. 03 What did Mani, Mullainathan, Shafir and Zhao (Science, 2013) find about financial worry and thinking?

   Evoking a large money worry reduced cognitive performance in lower-income participantsMoney worries sharpened everyone's focus and improved test scoresOnly people with diagnosed anxiety disorders were affectedCognitive effects appeared only in laboratory settings, never in the field

   In the experiments, considering a projected expensive financial problem (like a large car repair) lowered performance on unrelated reasoning tasks for lower-income participants but not richer ones — and the field study found the same farmers scored worse before harvest, when poor, than after. source ↗

4. 04 According to Shapiro and Burchell (2012), how did financial anxiety show up on an objective attention task?

   As obsessive over-attention to money wordsAs random, unpredictable attention shiftsIt was indistinguishable from general anxietyAs avoidance — attention moving away from financial information

   In 'Measuring Financial Anxiety', the dot-probe results were predominantly characterized by avoidance of financial information, self-report correlated with the implicit measures, and financial anxiety emerged as a construct distinct from depression and general anxiety. source ↗

5. 05 In the 'financial shame spirals' research (2021), what did financial shame predict?

   Immediate corrective action and faster debt repaymentWithdrawal from and avoidance of one's finances, deepening the hardshipNo behavioral effects — shame was purely an emotionIncreased willingness to ask friends for financial help

   Gladstone, Jachimowicz, Greenberg and Galinsky found that financial shame predicted withdrawing from and avoiding one's finances — a self-reinforcing spiral in which shame intensifies the very hardship it is about, unlike guilt tied to specific actions. source ↗