Market Mind Games

Emotion, risk and market behaviors

Feelings Matter—Even in Investing Decisions

It's not hard to do "affect analytics" - just ironic.

The big international bank HSBC used to run an ad saying "Control your Emotions". Just about every financial advisor anywhere will also say "Take the emotion out of it".

But here's the thing. How many of them understand that not a one of us could make a decision about any stock, investment or any other financial service if we literally could take all of the emotion out of our decisions? (Never mind the logical error inherent in this advice. After all, the "thing" that needs to be controlled is the action one takes - not the feelings one has. A feeling isn't automatically turned into action now is it?) 

It's a neuroscientific fact that we need emotion to make a decision. If we don't have it, even the simplest choices end up in a never-ending loop of pros and cons. It's the emotion that conveys the meaning of something. Recent research goes so far as to strongly suggest that without emotion, our eyesight won't actually produce images we can identify until "emotional meaning data" is deposited into the process.

With the avalanche of books telling us our thinking is too fast or based on too many shortcuts, it may be time to rethink thinking altogether. Excellent work coming out of The Affective Science Institute is pulling together how our "core affect"—in other words, how we feel—impacts not only what we take in from our senses but logically therefore influences our perceptions and in turn our judgment calls.

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Human feelings fall into basically three categories—sensory, emotional and physical. The first includes "a sense of" and intution. The second includes fear and anger (among others) and the third, tired or a sore throat and energy level. Each one can impact the way we see the question of how much money should we save or invest. Being tired has shown to color how we see risk such that we see less of of it. 

The trick is knowing what feelings are currently influencing us.

It's not even that hard of a trick. We simply have to change our mind about the value of feelings and then start tracking them. The hard part is unlearning and relearing what we think of them and what to do with them. We have all been educated to analyze the "objective" data while virutally no one has taught us to systematically analyze our "affect".

We need to know the internal context we bring to any judgment call about anything uncertain. Are we tired, irritated with something else or sensing that it is time to get into or out of an investment? If tired, we can wait to decide. If irritated, we can get a feeling of control somewhere else besides hitting buttons in our online investment account. If we are sensing something, then we need to examine the inputs causing the sensation. Without explicitly knowing where we are in these dimensions of feelings, we are consciously only working with, at best, half a data set.

It's not hard to do "affect analytics"—just ironic. It's even more ironic that knowing how you feel and why you feel that way can lead you directly to the more optimal decision for your circumstances—regardless of what the financial advisors have also been taught about how to advise you.

Denise Shull is the author of Market Mind Games, a game-changer in how we think about anything that seems risky.

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