Look at kids playing on a bouncy castle. The higher they jump, the more excited they get, and the louder they laugh. Kids feel safe jumping high and falling hard because there is a bouncy cushion to support them. In our research, we find that adults jump higher and take more risks when they feel the safety of a cushion supporting them too.
For adults, the cushion effect exists in the context of financial investment: When people have a safety net, they take more financial risks. For example, researchers have found that Chinese people, compared to Americans, take more risks in financial decisions because they have more financial support from family members. In other words, a large number of family contacts “cushions” the downside of losing in risky investments. This cushion effect has also been found in the context of online communities, where people who have more strong relationships with other community members are more likely to make risky decisions.
My collaborators and I wondered whether there is a psychological cushion that can serve the same function as family and community. We suspected that one way people could experience a psychological cushion is through nostalgia – a sentimental longing or wistful affection for the past.
Although some people wonder whether it is healthy to dwell on the past, research suggests that nostalgia is a predominantly positive social emotion. Nostalgia usually involves thinking about relationships with close others, such as family members, romantic partners, and friends. When people write about their nostalgic thoughts, they feel more socially connected, loved, and protected. Given those features of nostalgia, we thought that nostalgia might increase people’s perceived social support, serve as a psychological cushion, and result in increased financial risk taking.
In one study, we recruited a sample of business owners in the United States. We asked how frequently they experienced nostalgia and asked about their investment strategies. We found that business owners who experienced nostalgia more frequently were more likely to use more risky strategies to run their businesses, such as taking bold, wide-ranging actions to achieve the company’s objectives. And, more nostalgic owners preferred high-risk projects with chances of high returns.
In another study, participants who engaged in a nostalgia experience (“…bring to mind a nostalgic event from your past”) were more likely to engage in risk-taking behavior, such as investing in more risky stocks, than participants who were told to think about an ordinary event from the past.
Thus, nostalgia seems to create a psychological cushion that facilitates risk taking. This finding is important because, in general, most people tend to avoid risks. Risk aversion often involves a tendency to stick with the status quo and to not try new things. However, our research suggests that thinking nostalgically about the past can turn off the risk aversion tendency and provide a psychological cushion that propels them to take greater risks.
For Further Reading:
Zou, X., Lee, M., Wildschut , T, & Sedikides, C. (2019). Nostalgia increases financial risk taking. Personality and Social Psychology Bulletin, 45, 907-919.
Xi Zou is an associate professor at the Leadership, Management and Organization group at Nanyang Business School, Nanyang Technological University in Singapore.