As the workweek winds down, investors are more likely to roll the dice on risky financial moves, a new study suggests. The problem is that this burst of optimism tends to result in worse returns, say researchers. The study published in the Journal of Marketing Research finds that investors aren't just prone to such risks at the end of the week. The same principle applies to the end of the month or year—times researchers call "temporal landmarks." But in all such scenarios, the risks typically lead to poorer returns, per the University of Toronto Scarborough.
Analyzing millions of peer-to-peer lending decisions on the Prosper platform, University of Toronto researchers noticed a clear pattern: Loan bids made on Fridays, just before long weekends, or at the end of the month and year tended to chase higher interest rates, reflecting greater risk. Dec. 31 saw the riskiest bets of all, per Phys.org.
So what's driving the uptick in risk-taking? The researchers suggest it's a boost in optimism as people approach these calendar milestones, offering a "fresh start" feeling that disconnects them from past outcomes. Lab experiments backed up the data, showing that participants primed to think about Fridays or month-ends felt more confident and chose riskier financial options. But optimism didn't translate into bigger paydays. In fact, the riskier loans generated significantly lower returns than those made on more ordinary days. The researchers recommend that platforms like Prosper caution users against the end-of-period optimism trap.
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