The 1999 market crash happened because of an explosion of anti-depressant prescriptions, according to Nassir Ghaemi, psychiatrist and author of On Depression. He suggests that these anti-depressants made dealmakers so content and comfortable that they made reckless decisions. They were too deal-happy.
Happy people don’t always make the best decisions. Mentally healthy people suffer from so-called “optimism bias” and “positive illusions”, say acclaimed psychologists Tali Sharot and Shelley Taylor respectively. They tend to overestimate themselves and the likelihood of good things happening to them. Research shows that mildly depressed people are more realistic in their assessments, thus their attitudes to risk are more rational. So whom should we trust to make decisions?
From an evolutionary perspective, examples of the species ignoring risk and heading head-first into what, statistically, is more likely to fail than succeed makes sense. Disasters are collateral to evolution itself. From the narrower perspective of business, an instinct to ignore the possibility of failure is more tricky.
Richard Branson’s recent statement about luck being risky, that “people and businesses that are generally considered fortunate or luckier than others are usually also the ones that are prepared to take the greatest risks” is a universal truism. Like that it is good to have courage – it is how we arrive at being courageous that’s the big question.
Branson answers mostly to himself, so his approach to risk can be relatively unencumbered. Even more so for garage entrepreneurs at the start of their lives with nothing yet to lose. As soon as, however, there is something at stake and someone to answer to, risk profile changes. There are few public firms that, like Amazon, can afford to take risks and deliver relatively low profits to support their leadership’s vision of reinvestment and development. Amazon CEO Jeff Bezos has long been everyone’s darling, as has Branson in many ways, but for most companies driven by quarterly demands the kind of risk Branson or Bezos can take seems unacceptable.
Which explains in part why founder CEOs and entrepreneurs are our most recognisable business people (says Andrew Cave in Forbes), some bordering on celebrity. The public likes a tale of faith and unambiguous courage, of obsessive business compulsion, or of vulnerability and the gumption to overcome it. When it comes to handling your money, though, this kind of all-or-nothing attitude is less appealing. Most people would like their investment managers to be more boring.
And yet, as the adage goes, for any reward there must be some risk. It is not always quantifiable, and requires a more complex approach than plain ignoring the potential of failure. Taking possible failure into account confidently requires knowing one can survive it – financially, certainly, but also psychologically, which is often more elusive.
Hormone-driven deal happiness, a compulsion to trade, can render results, particularly when spread over a wide enough circle of individuals, but they can be just as likely to deliver disaster. Compulsive decisions alone cannot constitute a healthy portfolio. And happy, healthy individuals aren’t optimal
The 1999 market crash happened because of an explosion of anti-depressant prescriptions, according to Nassir Ghaemi, psychiatrist and author of On Depression. He suggests that these anti-depressants made dealmakers so content and comfortable that they made reckless decisions. They were too deal-happy.
Happy people don’t always make the best decisions. Mentally healthy people suffer from so-called “optimism bias” and “positive illusions”, say acclaimed psychologists Tali Sharot and Shelley Taylor respectively. They tend to overestimate themselves and the likelihood of good things happening to them. Research shows that mildly depressed people are more realistic in their assessments, thus their attitudes to risk are more rational. So whom should we trust to make decisions?
From an evolutionary perspective, examples of the species ignoring risk and heading head-first into what, statistically, is more likely to fail than succeed makes sense. Disasters are collateral to evolution itself. From the narrower perspective of business, an instinct to ignore the possibility of failure is more tricky.
Richard Branson’s recent statement about luck being risky, that “people and businesses that are generally considered fortunate or luckier than others are usually also the ones that are prepared to take the greatest risks” is a universal truism. Like that it is good to have courage – it is how we arrive at being courageous that’s the big question.
Branson answers mostly to himself, so his approach to risk can be relatively unencumbered. Even more so for garage entrepreneurs at the start of their lives with nothing yet to lose. As soon as, however, there is something at stake and someone to answer to, risk profile changes. There are few public firms that, like Amazon, can afford to take risks and deliver relatively low profits to support their leadership’s vision of reinvestment and development. Amazon CEO Jeff Bezos has long been everyone’s darling, as has Branson in many ways, but for most companies driven by quarterly demands the kind of risk Branson or Bezos can take seems unacceptable.
Which explains in part why founder CEOs and entrepreneurs are our most recognisable business people (says Andrew Cave in Forbes), some bordering on celebrity. The public likes a tale of faith and unambiguous courage, of obsessive business compulsion, or of vulnerability and the gumption to overcome it. When it comes to handling your money, though, this kind of all-or-nothing attitude is less appealing. Most people would like their investment managers to be more boring.
And yet, as the adage goes, for any reward there must be some risk. It is not always quantifiable, and requires a more complex approach than plain ignoring the potential of failure. Taking possible failure into account confidently requires knowing one can survive it – financially, certainly, but also psychologically, which is often more elusive.
Hormone-driven deal happiness, a compulsion to trade, can render results, particularly when spread over a wide enough circle of individuals, but they can be just as likely to deliver disaster. Compulsive decisions alone cannot constitute a healthy portfolio. And happy, healthy individuals aren’t optimal arbiters. So should we manage money like a mildly depressed person? The answer, for at least a portion of your portfolio, is probably yes, with a more realistic assessment of risk, and a more considered approach to failure.
That more considered approach, acknowledging the possibility of failure and dealing with it, can be the product of a failure overcome. Where it is not, resilience must be built – which seems to be in the same category of difficult to impossible as developing courage, but can actually be a practice, building up resilience through learning to hold two conflicting emotions. For this to become second nature requires daily discipline. It also takes acknowledging uncertainty as a part of business life, rather than ignoring or rationalising it by stretching numbers where there are none to be calculated. ‘I don’t know’ is the bravest sentence, and one of the most necessary where there is not a quantifiable entity.
Mankind in general doesn’t learn well from history. It’s an evolutionary necessity to forget the negative sides of the past and move on with optimism. Were that not the case, it would make it more difficult and more complex for us to take risks. So we forget the bad, and history repeats itself – market crashes included. Business books and media are full of success stories, motivation and inspiration, which without the balance of learning from failure do not foster courage. More often through confirmation bias – a human need to fit proof to what we think – they foster false confidence. For anyone with anything to lose, that should be scarier than uncertainty itself.
So should we manage money like a mildly depressed person? The answer, for at least a portion of your portfolio, is probably yes, with a more realistic assessment of risk, and a more considered approach to failure.
That more considered approach, acknowledging the possibility of failure and dealing with it, can be the product of a failure overcome. Where it is not, resilience must be built – which seems to be in the same category of difficult to impossible as developing courage, but can actually be a practice, building up resilience through learning to hold two conflicting emotions. For this to become second nature requires daily discipline. It also takes acknowledging uncertainty as a part of business life, rather than ignoring or rationalising it by stretching numbers where there are none to be calculated. ‘I don’t know’ is the bravest sentence, and one of the most necessary where there is not a quantifiable entity.
Mankind in general doesn’t learn well from history. It’s an evolutionary necessity to forget the negative sides of the past and move on with optimism. Were that not the case, it would make it more difficult and more complex for us to take risks. So we forget the bad, and history repeats itself – market crashes included. Business books and media are full of success stories, motivation and inspiration, which without the balance of learning from failure do not foster courage. More often through confirmation bias – a human need to fit proof to what we think – they foster false confidence. For anyone with anything to lose, that should be scarier than uncertainty itself.
The World Health Organisation recognises World Mental Health Day on 10 October every year. For more information, see mentalhealth.org.uk
