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.