Dispositional optimism (and pessimism), wealth, and stock market participation

In this paper I analyze the relationship between dispositional optimism (pessimism) and saving decisions. The key contribution of this paper is the use of direct psychometric measures of psychological dispositions as available in the Health and Retirement Study (HRS). The psychometric measures allow me to control for optimism and pessimism separately. Dispositional pessimism is shown to be significantly related to wealth holdings and stock market participation – optimism is not significantly related. A one standard deviation decrease in pessimism is associated with holding 64 thousand US- more overall wealth and an increase in the likelihood of holding stocks of 2.4%.