Certainty vs Likelihood

Anxiety is a permanent condition that drives stress. Without anxiety, we might make significant errors of excess and with too much anxiety, we might make significant errors or caution. While these issues are challenging, they are not nearly as difficult as the related unconscious behaviors.

In the investing arena there are many uncertainties. I discovered during the Great Tech Bubble of 1999-2000 that clients wanted certainty. When my clients who were business savvy asked about stock market conditions, I provided the pros and cons of why I thought it was a dangerous environment but declared that it was not certain. Almost to a person, these people fired me. When my clients whom I did not perceive to be savvy asked about conditions, I told them to go back to their lives, that it was dangerous and we were taking care of their funds. Almost to a person, these people stayed.

As a reflected on this divergence, I thought about being a passenger on an airplane. If the pilot came on the intercom and told us that we were entering a storm system, that it was likely that we would emerge alive but yet there remained a small chance that the plane would crash, I would be panic stricken. I'm actually looking for the pilot to lie to me - to make that high likelihood of safety into a certainty of safety in order to calm my anxiety over flying 32,000 feet in the air in a small metal tube. I discovered that clients wanted me to make a likelihood into certainty. That's actually part of what they pay for.

The problem is that when you begin by lying to others, you end by lying to yourself. By indicating certainty to others, that behavior can gradually lead to a sense that certainty is achievable instead of degrees of likelihood. There is no certainty in any markets. However, this knowledge is only relevant as far as the research process allows. If the certainty bias against anxiety runs rampant, it will then create additional delusions of overconfidence and confirmation biases.

Reasoning is critical, but rationality is limited in markets where empiricism is a careful constraint.