Guide to Human Behaviour
in Uncertain Times
As human beings, we have inbuilt biases that influence the way we see things. And that’s OK!
But we gain an edge with self-awareness – and with better decision-making comes better life outcomes.
Below are some of the factors to be aware of that may impact your financial decision making.
When uncertainty comes into our lives, our emotions go into overdrive. Probability Neglect is when you absorb what’s going on and reach decisions based on your emotional response. Those with ‘probability neglect’ tendencies will under-play the positive and over-inﬂate the negative!
When things are out of our control, we often have an urge to take action. We need to feel as if we are doing something proactive! During uncertain times (like now) doing nothing can be the best course of action. It takes conscious effort not to act, so people should remember that not taking action, is taking action.
Negative events have a greater impact on our brains than positive events. This means that in times of widespread uncertainty, an optimistic outlook can be hard to find! So, when things do start to brighten up and recover, we should stop to take a moment and really focus on the positive feelings they evoke.
It’s easy to reﬂect on what we said and thought at the beginning of an event, and to draw the conclusion that we were right all along. When we process post-event information, we should learn from it and accept that its outcome and our ‘predictions’ were nothing but a fortunate coincidence.
As humans, we have an inbuilt reﬂex-like tendency to reject new evidence (and knowledge) when it contradicts our established beliefs. So, when we’re told to wash our hands for longer to prevent an illness, we may be slow to accept the beneﬁts. Do read up about Ignaz Semmelweis!
Misinformation spreads like wild-fire. It is also a signiﬁcant factor in causing confusion and panic. During these times, people with higher conﬁrmation biases will be more susceptible to the catastrophising of news and social media posts; posts that do nothing but conﬁrm their current fears and anxieties.
The media is paid to tell us stories. But we also want to be gripped by what we read, so they sensationalise the content to sell more copies. People with a strong framing bias tend to be easier to mislead, and often take information on face value. Remember, an 80% fat-free yoghurt, also contains 20% fat!
Some of us can become ‘experts’ very quickly if we allow the Dunning-Kruger Effect to take hold of us. It’s very easy to think that because we seemingly timed the market once, that we know exactly what it will do forevermore. It’s so important not to over-inﬂate our abilities – none of us are psychic!
When we need information to make decisions, we tend to focus on nuts and bolts. During times of anxiety, it is easy to make rash decisions when more detail would have informed us otherwise. There is real value in having more information, and in taking time to process and internalise it fully.
We feel a loss more profoundly than that of any pleasure derived from an equivalent gain. When the stock markets are volatile, those with a high loss aversion will really feel it. Often their inner drive urges them to do something to make them ‘feel’ better – so they carry a risk of making impulsive decisions.
There’s comfort in numbers. So, sometimes we inexplicably choose to do something simply because everybody else is doing it. During uncertain times, thinking independently and basing decisions on our own principles and values is a good approach to help keep us grounded.
Our experiences of events are inﬂuenced by how we felt at the peak (the most intense point) and the end. We rarely look at the experience as a whole. At the end of any crisis, there will be relief. Be careful not to downplay the signiﬁcance of this event in the future by how you felt when it all ended!