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The Allure of Pessimism

As we enter emotionally charged presidential campaigns, we should prepare ourselves for an onslaught of pessimism. Election talking points tend to be more about slinging mud than the candidate's outline for future prosperity.

Why do they focus so much on the negative?

The bottom line is that pessimism is an effective communicator. It results in a greater emotional response, which gets us to tune in and makes information easier to recall. You better believe politicians want us to tune in and remember their message - so really it is a way to be more effective. 

Pessimism is also influential because it relies on more immediate needs than optimistic viewpoints, which often take longer to unfold. "Policy XYZ must be changed right now or else something really bad is going to happen." Any sense of urgency, even if it is just an illusion, gets us to tune in.

So, how can we rise above the negativity?

There are two ways to help us avoid getting caught up in the pessimism and negativity we find all around us. One is an avoidance strategy; another is filtering the information.

We can avoid the negativity by simply turning it off; taking a break from the campaign rhetoric and avoiding social media that gets you emotionally charged. While this may not be easy to do, it can be an effective strategy.  

We can also filter the noise by changing our time frame and focusing on long-term outcomes. Since negativity and pessimism are most influential over short periods of time, we can filter it. This strategy can help us remain mentally sane and financially rational. 

Investors that are influenced by short-term market moves can easily get caught up in it all. Those who focus on the long term don't care if the market goes down X% over the next few months because they are looking far beyond that. This is one reason why we emphasize a goal based approach - it's better for your psyche and encourages more thoughtful and deliberate financial decisions. 

©2020 The Behavioral Finance Network. Used with permission