The Flinchum File
Thoughtful Economic Analysis and Existential Opinions

Emotional Symmetry

02/13/2016

Excess emotions produce bad decisions.

Did you feel bad when the Dow lost 300 points on Thursday?  How bad?
Did you feel good when the Dow rose 300 points yesterday?  How good?

I’ll bet the strength of your bad feelings on Thursday was greater than the strength of your good feelings on Friday.  That’s because the pain of loss far exceeds the joy of gain.

You might have considered taking your money out of the stock market on Thursday, but I’ll bet you didn’t consider adding more money on Friday.  That’s because the pain of loss far exceeds the joy of gain.

Psychologists tell us that one of our most powerful emotions is “fight or flight.”  When facing a large sudden loss, it is our natural instinct to flee the stock market, since we cannot fight back.  It is also the worst time to make a reasoned decision.

Mr. Spock of Star Trek  fame would tell you there is no room for emotions in making investment decisions, because . . . the pain of loss far exceeds the joy of gain.

The emotions surrounding gain and loss are not symmetrical.  Don’t trust in your ability to make rational decisions when the market is down – your more powerful asymmetric emotion to flee will trick you . . . and cost you!

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