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Is irrational thinking associated with lower earnings and happiness?

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Abstract

This study investigates the individual outcomes of irrational thinking, including belief in the paranormal and non-scientific thinking. These modes of thinking are identified through factor analysis of eleven questions asked in a large-scale survey conducted in Japan in 2008. Income and happiness are used as measures of individual performance. We propose two hypotheses. Previous studies in finance lead us to consider Hypothesis 1 that both higher belief in the paranormal and non-scientific thinking are associated with lower income. Literature on the association between religion, the paranormal, and happiness suggest Hypothesis 2 that higher belief in the paranormal is associated with greater happiness, while higher non-scientific thinking is associated with greater unhappiness. To examine these hypotheses, we regress income and happiness on belief in the paranormal and non-scientific thinking with appropriate control variables. We employ the Mincer-type wage function as the income equation. Income, sex, and age are controlled in the happiness equation. Analysis supports both hypotheses, which highlights the complex features of irrationality. Although irrationality results in diminishing financial profitability, the component of belief in the paranormal improves the psychological state.

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Notes

  1. For more discussions on rationality, see Wilkinson (2008).

  2. The authors assume that rational agents are risk averse, which restricts them from carrying out unlimited arbitrage.

  3. Nevertheless, how happiness depends on various attributes and traits has been extensively investigated (see, e.g., Frey and Stutzer 2002). For example, based on a dictator game experiment, Konow and Earley (2008) found that more generous people report greater happiness.

  4. Lindeman and Aarnio (2007) offered some support for this; they reported that superstition is well predicted by ontological confusion, but not by analytical thinking.

  5. $1 =\106.58 yen on February 1, 2008.

  6. Specifically, we used principal factor analysis (PFA) with promax rotation.

  7. In addition, 58.5% answered “It doesn’t hold true at all” to the statement “I am deeply religious;” those who answered “It is particularly true” comprised only 3.4%.

  8. As many respondents did not reveal the number of days and hours that they worked, the sample size for the income regression is around half of the total number of observations.

  9. We deleted 24 samples whose wage rate exceeds 10,000 yen, since a wage of this level seems quite rare in Japan.

  10. This may be owing to the fact that workers in medium and small firms tend to work on Saturdays and national holidays more often than workers in large firms, and have a lower wage rate.

  11. See footnote 10. One more possible reason for the result on WHOUR may be that the wage rate is calculated as income divided by WHOUR. The estimates of column 3 were almost unchanged when WHOUR and WDAY were deleted from the regressor.

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Authors and Affiliations

  1. Graduate School of Economics, Osaka University, 1-7 Machikaneyama, Toyonaka, 560-0043, Japan

    Shoko Yamane

  2. Department of Economics, Keiai University, 1-5-21 Anagawa, Inage-ku, Chiba-shi, Chiba, 263-8588, Japan

    Hiroyasu Yoneda

  3. Faculty of Economics, Konan University, 8-9-1 Okamoto, Higashinada-ku, Kobe, 658-8501, Japan

    Yoshiro Tsutsui

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  1. Shoko Yamane
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  2. Hiroyasu Yoneda
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  3. Yoshiro Tsutsui
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Correspondence to Yoshiro Tsutsui.

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Yamane, S., Yoneda, H. & Tsutsui, Y. Is irrational thinking associated with lower earnings and happiness?. Mind Soc 18, 87–104 (2019). https://doi.org/10.1007/s11299-019-00213-4

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