Fear Itself
“The only thing we have to fear is fear itself.” - Franklin Delano Roosevelt, First Inaugural Address, 1933
It was the depths of the Great Depression, and FDR was trying to rally everyone out of the fear and pessimism that clouded the nation. He recognized that hope and optimism were vital to economic recovery. Unfortunately, encouraging words were not enough to create the sentiment necessary for growth. Over the next seven years, fear and uncertainty remained; and the Great Depression continued. It was finally dispelled, replaced by a can-do spirit of confidence, after Roosevelt lead the nation to victory and global dominance in the Second World War. Even though he did not have the solution in 1933, Roosevelt perceptively identified a great malady that afflicts, impoverishes, and divides humans — fear. Maybe he gained his insight through his battle with polio, which made him a paraplegic in the prime of his life. Maybe it was through the knowledge of economists and policy makers. Maybe it was just from his observations of those around him, but he got it right. Fear was the number one problem. It remains a great problem today — one of the worst that afflicts humanity.
Almost nothing creates as much suffering, division and bad behavior as fear; but whether they admit it or not, humans are hard-wired for it. Some people, understanding this wiring, exploit it in others for their own ends. Others, captive to their fear, create chaos and misery for themselves and for those around them. Most of us can see it in others more than we see it in ourselves.
How do we escape it, or at least manage it?
If we can answer that question, we can create happier and more prosperous lives for ourselves and those around us. We can make a better world. Hopefully, this brief paper is a step in that direction.
Fear: Hard-wired into us
Some people deny that fear is a problem for them, but fear afflicts everyone. It has many names: Caution, Apprehension, Wariness, Concern, Worry, Anxiety, Panic, Shame, Paranoia… We have a lot of ways to be afraid, and they all share one thing in common — they destroy our happiness. In his book, What Happy People Know , the psychologist Dan Baker — a pioneer in the study of happiness — states that fear is the primary obstacle to happiness. He explains that we are “hardwired for hard times”. It’s only natural for us to be careful and concerned in a world full of dangers and threats to the lives of ourselves and those we love — especially since some of those threats will eventually lead to our demise. The world is scary in many ways. It has been since the dawn of history, and so fear is ingrained in us.
Whether someone believes it comes from evolutionary programming, arises from social pressures, or is the byproduct of the fall of humanity, most can see that the wiring is in place and operating. In 2015, Melanie Tannenbaum published a meta-analysis entitled “Appealing to Fear. A Meta-Analysis of Fear-Appeal Effectiveness and Theories.” It covered 127 studies with over 27,000 participants and showed that fear appeals are effective in shaping attitudes and behavior. It also showed that the more frightening the appeal to fear, the more the effect it will have on behavior. She found that appeals to fear almost never backfired. The appeal almost always had the desired outcome. Human behavior is impacted by what humans fear, and that includes you and me.
None of this comes as a surprise. It’s not controversial. It’s something we’ve seen throughout history. The first Great Awakening in the USA was not started when Jonathan Edwards stood before his congregation and preached, “Smile, Jesus loves you.” Instead, he preached a sermon entitled “Sinners in the Hands of an Angry God”. Witnesses said that before he had finished his sermon “there was a great moaning and crying out through the whole house”. From this beginning, religious revival swept the nation. It had a great impact, but fear was its primary driver. There are many examples. Everyone can think of times fear, or anxiety, or “nerves” changed their own behavior, the behavior of those close to them, and even the behavior of entire societies.
But experiments show that most people underestimate how much it impacts their own decisions. Not just fear, but all emotions direct us more than we realize. It’s just that fear has more impact than most emotions.
In his book, Predictably Irrational, Dan Ariely — the James B. Duke Professor of Psychology and Behavioral Economics at Duke University — described how emotions impact our decisions. He found that most people greatly underestimate the degree to which they are impacted by their emotions. They realize their feelings impact their behavior, but they underestimate how much — by a lot. In one experiment, he asked people a series of questions. Would you do X? How about Y? How about Z? There were about 20 questions. Some actions on the list were viewed as more extreme than others. When their emotions were highly aroused, most participants found themselves answering “yes” regarding the extreme actions they refused to take when their feelings were not inflamed. People who had said “yes” to 3 out of 20 behaviors found themselves saying “yes” to 13 out of 20. Their behavior was highly driven by feelings — by emotion.
Knowledge of this can be life-changing.
I know because my life changed when I realized how fear impacts people:
- Fear impacts them, whether they call it jitters, anxiety, concern, caution or some other term.
- Fear impacts them more than they realize — a lot more.
- The same is true for me. I’m not exempt.
We obviously can’t eliminate all fear, nor should we. There are obviously some things of which we should be afraid. But we are afraid of too much — much too much. How do we avoid this needless suffering?
The first step is to acknowledge its reality. I took my first step in this direction in an unexpected place — my career, which frequently involved giving people financial advice.
The Puzzle: Why Won’t People Follow Rational Investment Advice? Why do Most People Make the Wrong Investment Decisions?
Those were the questions that provoked me to study Behavioral Finance. I had been helping people with their planning and investments for many years. I was frequently frustrated that people — good people and smart people — would not make rational decisions, even after I explained to them in great depth the reasoning underlying the best strategies, plans and decisions. It happened even after they acknowledged that they understood what I had shared, and they agreed to it. These weren’t risky schemes, concocted around the fringes of the financial world. These were tried and true ideas — tested and proven millions of times in many ways.
But when something happened to provoked their emotions, many people — in fact most people — still “went with their gut”. Instead of making rational decisions, they set aside all they had learned and made emotional decisions; and then they invented rationales to justify the emotional decision. More often than not, this behavior left them worse off rather than better off. This happened just as often with highly educated and intelligent people as with anyone else. In fact, since intelligent and educated people had more confidence in themselves, they were often worse at this. Among financial professionals, it’s common to hear them talk about how difficult it is to work with doctors and engineers, because they assume they are smarter than you (likely to be true) and can make a better decision on this subject than you (not true, since you’ve studied it all of your career; and they are novices). I learned that smart people are able to come up with very convincing reasons to support their horrible emotional decisions.
So I was frustrated. What good was it to spend years learning the best plans and decisions for my clients if those clients wouldn’t act on those plans and instead flew their financial airplane into the side of a mountain? After being rescued from the wreckage, many still would not listen to reason. Instead, they made a different emotional decision and flew into a different mountain. It was very frustrating.
I started looking for answers to this conundrum. I came across the study of behavioral finance — a new field of study that focused upon how and why people make decisions. Instead of presuming that people make rational decisions when properly informed, it asked the question, “What kind of decisions do people really make? What really drives those decisions?” This quickly lead to the question, “What kinds of mistakes are people prone to make?” I came across a paper published in 2002 by Richard Thaler and James Barberis entitled “A Survey of Behavioral Finance”. The paper identified many types errors people were prone to make, and it showed how financial phenomena could be better understood by acknowledging these tendencies. For this work, and other work that built upon it, Richard Thaler was awarded the Nobel Prize for economics.
Nobel Prize? That got my attention. After reading it, I saw why he won the prize. This changed the way I worked with clients.
I understood that my primary task was *not* merely showing them the optimal strategies and decisions for them. I had to recognize their tendencies — especially the ways they were prone to harm themselves; and I had to develop strategies that would protect them from their own irrationality. For example, if some were overly impacted by losses in their portfolios, I could help them develop strategies that would protect them from loss without greatly reducing their potential for gain. This might involve products with certain guarantees, or it might involve tactics that would limit the impact of losses. I also showed them the behavioral research and taught them that they were as much impacted by human irrationality as anyone else.
When they acknowledged their irrational fear, there was progress — but not enough. It helped a lot more to develop strategies to address their fears. Once their fears were allayed, they were able to prosper by making good decisions.
One brief article I frequently recommended was a brief piece entitled “The Benefits of Brain Damaged Investing”. It was a study that focused upon a group of 15 investors who had suffered a type of brain damage that reduced the capacity for emotion. These investors, with normal IQ’s and cognitive abilities, were set against a control group of investors — ordinary people. In the study, the brain-damaged group outperformed the control group. Why? The control group tended to sell investments after a downturn. Their aversion to losses forced them to miss recoveries. Like so many investors, they were subject to a greed-fear cycle, which drove them to buy high and sell low. The people without the ability to feel emotion didn’t do this.
The most fascinating part of the study was the conclusion of analysts. The fear component of the fear-greed cycle did most of the damage to the returns. Fear of losses had a bigger emotional impact than the desire for gain. For me, and for many of my fellow advisors and our clients, that was an epiphany.
It seems ironic to talk about an “epiphany” about fear, but it continued and broadened — beyond the financial world into the world of office politics, personal psychology, home life, national politics, international relations, war and peace. But it is a meaningless epiphany if I can’t use it to make the world better for myself and everyone else.
How Much Does This Matter?
How much does this really matter?
Maybe that’s for each reader to decide, and maybe these questions can be helpful:
- How happy am I? How happy are the people around me?
- Has my fear ever caused me to behave badly? Have I seen other people behaving badly out of fear?
- Have I been manipulated by fear? Have I noticed others being manipulated by fear?
- Has fear ever provoked me to make a bad decision? How much impact did that have?
- Have I seen someone else make a bad decision based on fear?
- What is the cost of inordinate fear in my life? What is its cost to society?
- Could I have better relationships with other people if I understood their tendency to act out of fear and if I was better at noticing and adapting to it?
Those are just a few questions. Needless to say, most of us will be happier, better-behaved, less prone to bad behavior and bad decisions, and better with our relationships if we are able to address the problem of fear in ourselves and others.
How to Overcome Fear and Keep it in its Proper Place.
Before I can do anything about fear, I need to recognize it in myself and in others, and I need to bring that fear under the control of reason. Emotions are unavoidable passengers in my car, for better or worse; but I must not let them grab the steering wheel, or even shout directions. Reason must be in the driver’s seat. The first job of reason in this respect is to notice that the fear is there, and that it’s trying to take the wheel. If I’m worried or afraid, the first step is to simply admit it.
Just say it out loud: “I am feeling fear (or anxiety, worry, panic, etc.)”
Next, remind myself what we’ve learned from the behavioral studies: “This fear is probably impacting my decision more than I realize.”
Having made those two statements, I’m on the road to reason. So I will continue down that road:
“If I operate out of fear, I am more likely to behave in a way I will later regret.” Exactly!
“I need to make decisions based on reason rather than fear.” Good!
If I’m in a situation that requires a good decision, I have to go against “my gut”. I must follow my mind — my reason. I might need help doing this. If I do, I go to someone who can help me reason in the area where I need to make the decision. All the stuff I just said to myself… Well, I say it to this trusted person. Then we reason together.
But maybe my problem is that someone is trying to scare me to influence or manipulate me. If that’s the case, it’s helpful just to state, “This person is appealing to fear”. Then I am more skeptical of their claims and not so easily swayed. Whether they are acting out of fear or not, they are trying to get me to act out of fear. That means they are pushing me away from reason and happiness and towards unhappiness and bad behavior. Maybe they are right about the object they want me to fear, but an extra level of critical thinking and skepticism is in order.
But what if it’s just a broad-based anxiety and not related to a particular decision? What do I do?
Dan Baker, the psychologist who identified fear as the major happiness destroyer, had an answer for that, too. Just as he found that fear is a “happiness-destroyer”, he discovered a “fear-destroyer”. He calls it “appreciation”. By that, he means love or gratitude. While I am appreciating the beauty of a mountain, the kindness of a friend, the power of a story, the courage of a person overcoming adversity, the playfulness of a puppy, the sweet lyricism of an Irish folk tune, the loyalty of a lover, or one of the many other good things in the world…
Well, the fear is pushed out of my brain. Fear can’t coexist with appreciation.
Of course, if a bear is charging at me through the forest, it is difficult to appreciate the beauty of either the bear or the forest; but that’s not the problem I deal with most of the time. Metaphorically, most of the time, my appreciation of the forest is ruined by my fear of the dangerous bear I merely imagine to be nearby. How do I deal with it? First, I recognize the fear. Second, I use my reason to reassure myself that the danger is not so imminent as I’m inclined to think. Third, I start noticing the forest.
But it’s not about bears. Like the women in the famous survey, I’m frightened of people — not bears.
So I remember the words of a very wise man I once knew — a world traveler, who loved to go everywhere — from Africa to Europe to the far east, to Australia. He wasn’t a very big guy, but he was happy. He was happy in the developed world, the developing world and in the bush. Before one of my trips to Africa, he gave me two pieces of advice. First, he told me to wash under my fingernails. “A lot of crud can get under there”. Second, he said, “Most people are good people”. He said they want others to think well of them. “If you aren’t a jerk, they will try to help you.”
But is that true? Are most people good people? We know they’re not perfect. Everyone has flaws, but…
Once again, I leave that to readers to decide; but maybe a few questions will help.
- How many of the 5 or 10 people closest to me in my life are what I would call good people on the whole? Are they people who want to make the world better, or are they people who care nothing about the world?
- Of the 10–20 people I’ve met most recently, how many of them treated me with decency and friendship? How many treated me badly? Were most of them uncaring and self-absorbed, or did they have a genuine concern for the well-being of others?
- If my life is filled with fear, is it because I’m surrounded by the wrong people; or is it because I am surrounded by the wrong thoughts?
If there are a lot of angry bears in my forest, then maybe I need to find some other forest to appreciate. If there are not, then maybe I need to use my reason and appreciation/love/gratitude to be sure I don’t fear the non-existent bear and thus become the bear I fear. Just as important, maybe there’s a way I can understand when and why other people are frightened by imaginary bears, and gently help them to find the way to reason, gratitude and happiness.
Maybe I can even write a little essay to help them.
