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Wednesday, 2 May 2012

Mindless With Money

Non-conscious Numbskulls

We all know the feeling of mindlessness. You get it when you drive the same roads as usual and get out at the end not remembering anything about the journey, or when you eat a meal without tasting it, or leave a meeting without the faintest idea what just happened. Yet to everyone around us we’ve behaved just the same way we always do.

There’s something really odd about this, because it suggests that we don’t need to be conscious of what we’re doing to achieve what we want to do. Whether that’s a good thing or not is debateable, because being mindless with money is likely to cause results that might be best described as “unfortunate”.


The modern idea of mindlessness as a problem in everyday life originated by Ellen Langer, who is one of the more interesting personalities in the psychology community. Langer’s interests bridge the scientific with the esoteric, and I don’t mean that in a negative sense: she believes that you can’t boil an individual down to a few tests and that personal psychology is as important as broader trends. Langer’s interest in mindlessness – and it’s opposite, mindfulness – seems to have originated in her research into the illusion of control:
“Perceived control has been shown to have very positive effects on stress reduction and health … It is the perception of control, rather than any objectively viewed control, that is the significant variable. Interestingly, when a person behaves mindlessly, the perception of control is not possible. Therefore we conducted several investigations … to see if mindfulness in elderly populations could be increased with positive effects. We found that this could be accomplished with relatively simple manipulations, for example, having more control over one’s schedule and taking care of plan[t]s”
Yes, giving an old person a pot-plant to look after significantly increased their lifespan. By increasing their feeling of being in control, and reducing their opportunity for mindlessness, the addition of a pot plant and some minor control over their schedules – such as when they went to see a movie – made a major difference.

You Are Not A Computer

Mindlessness itself is a rather odd concept, since it suggests that we can navigate our way through daily life without really being aware of what we’re doing. It’s doubtful that anyone reading this hasn’t experienced this feeling. The alternative, Langer’s mindfulness, is to be fully cogniscent of what we’re doing and feeling.

Underlying this is a direct refutation of the metaphor “the brain is a computer”: if a question can’t be boiled down to an equation then it can’t be solved by a computer, and if it can be then it doesn’t require consciousness. As Langer puts it:
“All that investigations based on the mind-as-computer metaphor can tell us is whether our problem-solving processes deviate from the normative precepts that make up the metaphor in question. Thus, we are not informed about the possibly nonalgorithmic processes by which people come to solve the practical problems that cognitive scientists expect them to solve by algorithmic means”.

Or, to put it another way, we tend to operate on autopilot whenever we can. There are good reasons for this, as Kathleen Vohs and colleagues demonstrated in this paper:
“[We] suggest that self-regulation, active initiative, and effortful choosing draw on the same psychological resource. Making decisions depletes that resource, thereby weakening the subsequent capacity for self-control and active initiative. The impairment of self-control was shown on a variety of tasks, including physical stamina and pain tolerance, persistence in the face of failure, and quality and quantity of numerical calculations. It also led to greater passivity.”
This problem is that the more decisions we make the less resilient we become, and goes some way towards explaining mindlessness. The research suggests that it’s active decision making that causes this depletion of resources, whereas simply “deliberating and forming preferences about options” is less tiring. This is similar to mindlessness, as described by Weick and colleagues:
“Characterized by reliance on past categories, acting on “automatic pilot” and fixation on a single perspective without awareness that things could be otherwise.”
We’ve seen plentiful examples of mindlessness with money – it seems to be particularly depleting for many people to actually think about this stuff, and much easier to drop into a mindless mode of operation. Numerous psychological effects are implicated such as herding, confirmation bias, reliance on authority, the disposition effect, the mere exposure effect … I could go on and on. Thinking is a great deal harder than mindlessly following a simple rule.

Mindful With Money

The Weick paper, specifically about the dangers of mindlessness in safety critical organisations – think Three Mile Island and Chernobyl – come up with a short list of five processes which can lead away from mindlessness. It’s equally useful for investors:
  1. Be pre-occupied with failure. Nothing focuses the mind like the possibility of failure – people who worry more about things going wrong are far less likely to lapse into a mindless state, and far more likely to spot potential problems.
  2. Be reluctant to simplify interpretations. Don’t simply lapse into default behaviors because that’s what you’ve always done, and don’t simply rely on default methods of selecting stocks for similar reasons, continually examine your decision making process.
  3. Be sensitive to operations. Keep looking for things that are odd and don’t ignore them when you find them - and try to figure out what they mean in the overall context of your investing strategy.
  4. Learn to be resilient. This is all about recovering from failure – setbacks are part and parcel of investing, embrace them and learn from them. Don’t default to hiding under the bed when everything goes wrong.
  5. Don’t over-specify your decision structures. Try to avoid totally prescriptive checklists and rule sets, because they’ll leave you dead when the situation changes. You need flexibility to cope with the unexpected.
Thoughtful Processes

All this is easier said than done, of course. Most wise old investors rightly argue that process is more important than anything else, primarily because it guides you away from being continually sidetracked by your psychological urges. Unfortunately you can take this too far, and if this ends up with a default state of mindlessness where you simply follow a pre-cooked recipe you will, eventually, come a cropper. Process should guide you towards the things that need further investigation, not simply replace the engagement of the brain.

This adds to the research discussed in To Go Boldly: Risk and the Prime Directive, where non-conscious goal driven behavior can take us over without us realising it.  Developing techniques to encourage mindfulness can reduce these effects and seems to have a range of other beneficial side-effects:
"In more than 30 years of research, we've found that increasing mindfulness increases charisma and productivity, decreases burnout and accidents, and increases creativity, memory, attention, positive affect, health, and even longevity. When mindful we can take advantages of opportunities and avert the dangers that don't yet exist."
Wealthier, healthier and sexier; seems like a no-brainer.  Well, it would be, if that wasn't a contradition in terms ...

Related articles:
Mindlessness, resource depletion added to the Big List of Behavioral Biases.

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