Once upon a time, I often found some of the daily/nightly news interesting. It was also my attempt to see another person’s view on various stories. But over time, I have noticed that everything is breaking news. What is so earth-shattering about another Presidential tweet? Even more so, I see constant fear and anxiety in almost every headline-breaking story.
What Are You Afraid Of?
I came across an article What Are You Afraid Of?, by Dr. Steven Novella, an academic clinical neurologist at Yale University School of Medicine. In his article, Dr. Novella 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 shortcut 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 something is common or likely if we can easily 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 similarly, trying to sell, at times, all types of fears or, in the opposite case, highlight why everything will 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 backing up our intuitions with an analytical approach 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 likely to be helpful rather than harmful.
While emotions can work to our benefit, they can certainly work to our detriment, especially in 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 our biases’ impacts on our personal and financial lives.