Back at IE Business School, I learned about how psychology could explain the effects and anomalies of the stock market, which, in extreme cases, can lead to bubbles and market crashes.
Some of these investor biases show up on my daily life. If something goes well, I’ll feel overconfident and float on a puffy cloud. Usually, I start paying less attention to small details and, as soon as there’s a turn of events, I crash. After a few falls, I’ll feel more averse to taking up new challenges and risks – After all, nobody likes to fail and get hurt, right?
Right. But wrong.
Studies show that positive and negative information of the same importance do not have the same weight in our minds. They don’t balance each other out – instead, we’ll feel worse than neutral. Naturally, our mind tends to give more weight to the negative experience than to the positive one (this is called Negativity bias). For example: if someone has given us a bad first impression, this one is more resistant to disconfirmation than a first good impression.
Those who know me, know I have occasionally been an emotional roller-coaster. I may have started the day bright and with a smile, but if something goes wrong, everything just feels like it has crumbled into pieces. Every evening, I used to evaluate the day on my way home:
- The bus came on time: + 5 points
- It started to rain: -5 points
- I forgot my umbrella at home: -10 points
- I got positive feedback at work: + 10 points
- I lost my Oyster card with 50 GBP on it: – 50 points
At the end of the day, I felt mediocre and deflated – even though the day, as an overall, hadn’t been that bad! Was I aiming for perfection all the time? Maybe. Maybe I was being too harsh with myself and maybe I was just being ridiculous monitoring each day’s performance.
The truth is: putting more weight on negative experiences than on positive ones is exhausting. I continuously tried to improve the day, and when the overall outcome was below zero (or neutral), I felt like it had been a bad day overall. Instead of trying to change every day’s score, I have decided to change the way I evaluate the day. I will be grateful for the good things that happen throughout the day and hold on longer to these positive experiences than to the negative ones.