Monday, January 21, 2008

Fear, Emotional Resilience & Risk Aversion

With in less than 24hours of the last blog about risk aversion and recession this happens based on fear, the perception that something might happen.
One of the things that we discuss on our workshops is the role of fear in risk aversion and behaviour.
Fear is a largely anticipatory activity; rarely does it occur after an event. Quite often with our fear we bring about the very event we don't want to happen, as discussed yesterday. An analogy if you like is learning to ride a motorcycle. When learning to ride the thing that most learners find difficult is cornering as you have to lean into the corner and until you get used to it , it feels like a pretty unnatural position, especially if you are used to driving a car. What learners then do is have a fear of running off on a bend and as a result of which they fix their eyes on the kerb, where they don't want to go of, just to check that they are not getting too close. Of course you tend to aim for where you are looking, the fear in this case increases the chances of running off on a bend! Experienced riders on the other hand fix their eyes on where they want to go, around the bend and they look for the exit not the thing they don't want to happen. As a result they can get around much faster and safer.
Fear makes us aim for the thing we least want. The acronym for fear is
How many things have you been scared of that turned out to be nothing? It leads to risk aversion and often brings about the very thing we don't want to happen.
If everyone decided that the market was ripe for investment and opportunity the market movement would be very different. When fear is endemic things start to go badly wrong as fear feeds of fear.
I am sure most of us will remember as a child being in a group telling ghost stories. As the stories build so does the group fear until eventually someone actually sees a ghost and everyone runs screaming! Group hysteria.
This is the reason why emotional resilience, as opposed to intelligence is so important, which is the cornerstone of our workshops with people like the emergency services, disaster managers et al.
There is nothing that exists now that didn't exist last week in the financial market. What is happening is based on an emotional reaction (or lots of them) feeding off each other in a fear frenzy. Tomorrow should be interesting.
It may not have escaped anyones attention that many wars start similarly.

No comments: