And the “Talking Cure”

I don’t know who coined the term, but whoever it was deserves a medal.  I was introduced to it early in my training as a psychologist and psychoanalyst, and it’s a good diagnosis for those who cannot tolerate doubt.  They believe something is true, essentially, because they cannot bear thinking otherwise.

I see this again and again in my work with traders.  They will take a position, and then hold to it stubbornly as the market turns against them.  Sometimes they just can’t change their minds until, suddenly, they wake up to the fact that have they have lost tens of thousands of dollars.

This issue comes up again as Bloomberg News published a piece by Barry Ritholz, author of Bailout Nation, reiterating some of the obvious truisms about the uncertainties and risks of markets.  He adds a comment about those who attempt to predict them:  “Pundits may hate uncertainty — it tends to makes them look foolish — but markets harbor no such bias. In fact, markets thrive on uncertainty. It is their reason for being.”  (See, “Kiss Your Assets Goodbye When Certainty Reigns.”)

Pundits and financial advisors — and journalists, too — get paid to guide us through the murky realms of future markets.  It’s not really surprising how much they try, given our eagerness to know.  What is more surprising is how quickly we forget their mistakes, and pursue them for our next fix.  Most people who believe pundits or listen to their financial advisors are not “pathologically certain,” but there is a dangerous tendency to lean in that direction and to keep going back for more.

It is a problem that is generally unrecognized because we crave certainty so much, particularly when it comes to money.  It’s hard to see when you have too much conviction.

So how can we become more mindful of our limitations?  How can those who offer advice refrain from being seduced into saying more than they know?   How can we be less willing to entice them into trying?

Here again I am a great believer in the talking cure.  If we talk about it with someone neutral, a friend who isn’t motivated to agree with us too much, we can hear ourselves better.  The friend may have good advice to offer, but, even better, by talking about it we can become more attentive to our own thinking.  And we can become more reflective about our motivations before we act on them.