Taking the Road Less Traveled
The Wall Street Journal recently published an article discussing some of the latest research on decision making. In this study, researchers examined the behavior of a group of six- and nine-month-old babies. Using pictures of both large and small groups of people, the study arranged these images to convey a progression of events to the infants. For example, one image showed four people on one side of a bridge and two on the other. The next picture showed one of the two people crossing the bridge back toward the other four. The researchers then recorded the reactions of each baby.
The study revealed something deeply primal about the expectations and decision making assumptions of human beings. The babies demonstrated surprise when the group with fewer people crossed the bridge first. The implications of this reaction are that, even at a tender age, we humans associate decision making and power with the crowd. Even if the two people on one side were much larger than the four people on the other side, the babies still expected the group with larger numbers to win out.
So, how much of our decision making is instinctive and how much is a conscious act? Is going against the crowd really that difficult? The answer appears to be yes. Thus, we may be left with the hopeless belief that our instincts can often overrule our conscious minds. Or we can understand these instinctive impulses for what they are and make a dedicated attempt to counter our knee-jerk decisions with conscious choices.
In the investment world, we see a mountain of evidence that documents this herd mentality and the devastating effect it has on wealth creation and preservation. Despite decades of warning about the hazards of this human condition, investor acceptance of it is still extremely modest. Wouldn’t it be more rational at this point to realize that it’s time to try a different approach and choose the road less traveled?
As financial mentors, perhaps we should be teaching our clients to consciously embrace the disciplines of effective decision making and self-awareness. Going against instinct and consciously choosing to be different are often the attributes of highly successful people. For thousands of years, we were rewarded by going with the crowd. But in the modern world, following that evolutionary instinct is increasingly an impediment to success.
Self-awareness allows us to keep our impulses in check. Effective decision making is a scientific process of formulating ideas and testing them against the problem until a solution is found—and constantly refining this solution over time to increase success.
If we condition ourselves and our clients to accept these truths, we can moderate impulsive decision making and learn to navigate the road less traveled.