Wishful Thinking

Mar 24, 2022

Markets have been highly volatile since the start of the Ukraine invasion in February 2022.

How you noticed that when markets are falling you are less likely to log in to check your investment accounts online and when markets are rising you log in more often?

If share prices are an important consideration to your investment strategy, then this makes no sense.

On the flip side, if daily valuations have no bearing on your strategy, then why do you check your account frequently when markets are rising?

Clearly our emotions are playing a part in these actions.

We know that judgement is improved when we have control of our emotions therefore it would seem that strong reactions from a highly volatile market are not the time to make decisions.  Or maybe we can control our emotions?

Our emotions and preconceived notions have a strong correlation in how we interpret information.

This however does not apply to all information.

For example, if I were to tell you the moon was approximately 1 million miles away from Earth, it is unlikely you will be emotional in your response because you are not personally attached to this information.  In this scenario, you are more likely to pose internal questions such as: 1) how far  is 1 million miles relatively or 2) Doesn't the distance change substantially given that the moon’s orbit isn't simple circle

Why do we find ways to dismiss information we don’t like or in the case of information we do like, we don’t tend to question the data?

As a coffee drinker, I will come across an article which reflects a study pointing to how drinking coffee increases certain health risks. I am generally quick to dismiss these yet readily agree with articles suggesting coffee is good for you.   The problem is that neither study creates a desire to understand the information, sources and details.

Our emotions do not allow us to look for flaws.

The more extreme the example, the more our emotions get involved, making it difficult to be curious and dig deeper.

There is a well-known experiment where individuals had a blood sample taken and then shown a presentation on the dangers of herpes. They were then told the blood would be tested for this disease.  One in five elected not to know the result and were willing to pay to have their sample discarded.  They didn’t want to deal with the anxiety.   Without emotion, the response would have been to research and understand precautions that can be taken or how herpes can be managed so knowing the result would be a good thing

This is called the Ostrich Effect.

Given that our feelings trump our expertise, it would seem managing or controlling our emotions can have value to avoid “wishful thinking” (our reasoning is controlled by our hopes).

Here are some ideas to improving your judgement when this takes place:

1.      Take notice of whether emotions are at play.  Just asking the question is a good habit

2.      Ask yourself:  How does this information make me feel? (Angry, Anxious, fearful, etc)

3.      Am I trying to find a reason to dismiss this information/claim?

4.      Before repeating a statistic, ask yourself how the information makes you feel then revisit the information before just repeating

Do not believe just because you want to.  More information to support your own thinking is not the solution.  It polarizes your viewpoint even further.

The next time someone sends you a study arguing for or against something important to you, simply pause for a minute to reflect just like you would if someone sent to you a brain teaser.

Enjoy the weekend, Karl

“It’s going to disappear (covid-19).  One day it’s like a miracle, it will disappear” Former President Donald Trump, February 2020
“Today’s persuaders don’t want you to stop and think. They want you to hurry up and feel. When was the last time Greenpeace or Donald Trump tweeted something designed to make you pause in calm reflection?” Tim Harford

Karl Choltus

Deep thinking Canadian sharing thoughts created in the shower.