Once upon a time I often found some of the daily/nightly news to be interesting.  It was also my attempt to see another person’s view on various stories.  But over the course of time, I have noticed that everything is breaking news.  What is so earth-shattering about another Presidential tweet?  Even more so, I see a constant amount of fear and anxiety in just about every headline breaking story.

What Are You Afraid Of?

I came across the article What Are You Afraid Of? by Dr. Steven Novella, an academic clinical neurologist at Yale University School of Medicine.  Dr. Novella, in his article, raises the question, why do so many people worry about the (statistically) wrong things?  Below are a few of his answers;

• Humans are intuitively terrible at probability; “for most of us, our brains are just not built to be comfortable with large numbers. That is why people gamble and play the lottery.”
• Availability of heuristics; “A heuristic is a mental short-cut that most people tend to make, without thinking. It is true enough most of the time to be an efficient assumption, but it is not strictly logically true. The availability heuristic is the tendency to assume that something is common or likely if we are easily able to think of an example.  We are given the false sense that the events we see on the news are common or likely. Therefore, the news tends to give us a distorted view of reality. They also tend to focus on fears, because that is what sells. “Should you be afraid of X? Find out at 11.”
• Social media; “There is an entire cottage industry that exists to sell fears about food and toxins. People worry about trace amounts of “chemicals” in their food rather than whether or not they are getting enough exercise.”

Just like the mass media evening news, the financial media works in a similar fashion trying to sell at times all types of fears or in the opposite case highlight why everything is going to be great.  The truth as in most cases likely falls somewhere in the middle.

Dr. Novella goes on to conclude in his article the following;

• Fear and anxiety are adaptive emotions, but their net effect in a complex technological civilization is not always adaptive. Not surprisingly for a skeptic, I find that backing up our intuitions with an analytical approach is extremely helpful.
• Fear can be a net negative when it is hugely distorted, and fear can be manipulated by people with an agenda. Analyzing actual probability and going through a thoughtful analysis will help put our fears into perspective and identify measures that are likely to be helpful rather than harmful.

While emotions can work to our benefit, they can certainly work to our detriment especially when it comes to handling our financial lives.  At times we may become so consumed with our fears and emotions that we don’t know how to hit the stop button to reset and begin anew with a different perspective.

Becoming aware of these emotions is a good first step in understanding the impacts that our biases can have on our personal and financial lives.