Saturday, November 22, 2008


What You Don't Want to Know

Countless numbers of people in the past few weeks have confessed to me they are not able to look at their balance sheets.  Mostly these are not professional investors -- but the list does include several portfolio managers I see regularly.  They can review their client's positions, of course, particularly when their clients call up in panic, but they can't seem to look their own losses in the eye.  Why?

Obviously bad news is unwanted.  On the other hand, little is to be gained from ignorance -- and more can be lost.  I think that when people confess to avoiding the facts, they are relying on this common sense idea that the news is just too painful to bear.  But if we dig deeper there are other motives, several in fact.

An obvious one is that knowing the extent of the damage creates a demand for action. It reminds people that they could do something about it, that they have the ultimate responsibility to act on their own behalf.  In many cases, though, this responsibility can be more frightening than simply accepting the loss, especially if don't let yourself know exactly  how much of a loss it is.  Vagueness and uncertainty can be preferable to feeling incompetent or irresolute.

Then there is the defense of optimism.  We can deny the fact of the damage or the extent of our losses if we believe that it will all work out in the end.  Markets go up and then they go down -- and then they go up again.  And our recent history seems to confirm that fact, along with the fact that when they go up again they eventually go up even higher than before.  All you need is patience -- sometimes a lot of patience and enough cash to wait it out.

I think there is a third and less obvious hidden motive here:  solidarity.  When someone confesses he hasn't looked at his portfolio, he is letting you in on a secret, assuming a certain complicity.  The hidden message is that "we are all in this together." It is a version of the fellow feeling that accompanies natural disasters.  We feel closer to each other because we share a common misfortune.  It is not so much that we help each other out, though we sometimes do.  It is that sharing the experience makes the world feel less alien -- at least that portion of the world that includes you and me.  There is a comfort in belonging to a larger whole.

These motives contradict the notion of a market driven by rational interests.  At least they modify it significantly.  Moreover, collectively, they suggest the power of inertia to curb the precipitous decline of markets.  As a psychologist, I would not begin to know how to calculate the effect on prices, though I am sure that armed with decent survey data someone could.  But it is obvious to me that markets would collapse even more thoroughly than they do were it not for the investor forces of avoidance, denial and shared misery.  

That may be bad for the individuals who do not act, but it may be good for us all.

Sunday, November 9, 2008



It did seem as if the so-called "Bradley effect" did  not come into play in the election after all.  Why?

Leaving our of account the possibility that there really is no "Bradley effect," no racism in our electoral politics, which seems impossible to accept, given the ubiquity of racism in our culture, what happened to our racism in the polling booth?

Benedict Carey argued in The New York Times on November 7th:  the election illustrated that  "mutual trust between members of different races can catch on just as quick, and spread just as fast, as suspicion."  Clearly we would like to believe this -- and there is some truth to it.  

On an individual level, person to person communication goes a long way towards mitigating prejudices.  But to a very large extent, racism is a group processes that involves the identities of group members.  One can hold to virulent racist views and still like and even enjoy friends who fit into those categories of  hate.  It isn't even that people make exceptions so much that these are two different types of experience, the experience of the personal and the experience of one's identity group.  They can exist side by side.

I know this from my own experience.  My father was an anti-semite who grew up in post-WWI Germany, but he loved and admired my jewish wife and he adored his jewish grandchildren.  No conflict, no contradiction -- except, of course, for me.

Obama, of course, never became a "friend" to the electorate, never established a personal relationship.  He was and remained "Black."

What happened, I think, is that over the course of the election he lost his strangeness. Repeated exposure in debates, interviews, advertisements, public appearances made him familiar to us, less threatening.  To be sure, many remained "uncomfortable" with him, as they said, but many more lost their feeling that he was too different to understand.  And, then, increasingly, Palin and McCain himself became strange, impulsive, intolerant, negative.

The process was a good example of how consciousness can, over time, and in the right circumstances, override unconscious prejudice.  

Thank god!