After several weeks of the COVID-19 crisis and the capital markets’ volatility, it’s hard to remember what life was like when things were normal. Each day brings a new set of stimulants to remind us that the future—at least for now—is terribly uncertain. But understanding human behavior can help us as this crisis unfolds.

The Two Brains

There are few things more painful for human beings than feeling uncertain and helpless when facing powerful, inhuman forces. Unfortunately, that’s our daily experience now and most likely for a number of weeks.

While the trajectory of a health crisis and the shape of a market recovery are profoundly unpredictable, the way humans react in a crisis is not. The central nervous system hasn’t changed in 50,000 years. Decades of research in behavioral finance have granted us a deep understanding of human behavior and the ability to anticipate most people’s reactions during periods of uncertainty. Prudent advisors take advantage of this knowledge to take care of their clients and themselves.

In 2011, behavioral economist Daniel Kahneman published his opus, Thinking, Fast and Slow, in which he observed two methods that the human brain uses to make decisions. The “slow-thinking” part of the brain uses analytic processes, logic and language to arrive at carefully considered conclusions. This system makes humans rational, gives us the ability to communicate and cooperate with others, and organizes intentional problem solving in difficult life circumstances. It’s composed of the deliberate decision-making processes our medical and economic experts use to provide guidance. This system helps us understand and follow that advice.

Kahneman also observed another process that he called the “fast-thinking” brain, which uses ancient, instincts to make quick decisions when survival is at stake. While this part of the brain has been valuable over thousands of years, as it was designed to help humans deal with threats like snakes or charging buffalo, it doesn’t help us cope wisely with investment strategies or economic uncertainty. Understanding how this built-in part of our brain can affect you as an advisor and how it can stimulate challenging behaviors in your clients is critical for navigating this crisis.

Sometimes Thinking Is a Bad Idea

The fast-thinking part of the brain can muddle thoughts by trying to undo what happened in the past. Undoing is the instinctive tendency to imagine that you can change past. You have undoubtedly experienced looking back at an unfortunate event, feeling regret or guilt, and then imagining how that scenario might have gone differently. This pattern of thought is often accompanied by an internal dialogue: “If only I had done [X], then [Y] wouldn’t have happened.” You’ve probably heard the saying “Hindsight is 20/20,” which means that we can always see more clearly when we look back in time than at the moment when we must make a decision and we are looking forward. This is because the future is always uncertain and complicated because of the number of choices we have. In a similar way, looking back in time is always clearer and certain because the ambiguity has been replaced with the sure knowledge of what has happened. This seduces the brain into looking back in time because of the appeal of the certainty and simplicity, which then activates the desire to fix those things that can no longer be fixed.

But That’s Not All

This pattern of undoing is painful. The fast-thinking part of the brain mistakenly tries to fix something in the past that cannot be touched, while the slow-thinking part often doesn’t recognize the futility of the task. For advisors, this can become a self-perpetuating cycle: some return repeatedly to the same event, desperately trying to figure out how to fix what happened weeks, months or even years ago. During periods of crisis, the fast-thinking brain can create sleepless nights as it frantically searches for a way to undo what has happened.

Recognize that clients are just as likely to experience this hindsight bias. In fact, because clients often don’t have as much information to work with, they may be more inclined to return to the past to attempt to fix their problem. This can lead to a rapid cycle where they think of the past, imagine how things could have been different “if only we had…,” and then return to the present feeling helpless and even more afraid of the future.

For some clients, this can lead to imagining the worst-case scenario and irrationally blaming the advisor. In some cases, clients may lose track of the facts of investing and succumb to inexperience and emotions. These will be expressed as anger; a client might say, “You should have…” or even “We should have….” This language can signal an irrational pattern of undoing and blaming the current circumstances on some imaginary failure on the part of the advisor.

What Can We Do to Take Care of Ourselves—and Our Clients?

Becoming an effective advisor who cares for every client starts with taking care of yourself. There are three things you can do to manage your fast-thinking brain and protect yourself from the destructive cycle of undoing and beating yourself up.

1. Pay attention to your mental patterns—especially when you are tired and at night. The more fatigued you become, the more likely your slow-thinking brain will shut down and allow the fast-thinking brain to take over. This is when you will find your thoughts returning repeatedly to the idea “If only I had….” If the slow-thinking brain allows this cycle to happen, the fast-thinking brain continues to try to help by returning to the decision. Interrupt this pattern by intentionally focusing on the present and recognizing that time has passed. The action you are considering is no longer available. It may take several attempts, but the fast-thinking brain will eventually abandon the undoing pattern if you observe the impossibility of it enough times.

2. Recognize that whenever you deploy capital, there are three conditions that you cannot overcome:

a. Uncertainty: The future is totally indeterminate.
b. Complexity: The number of options for the capital is virtually infinite.
c. Urgency: You have a very limited period of time in which to make the decision.

These constraints are present at every investment decision; as a financial advisor, you can’t eliminate these challenges.

3. Be aware that your clients are even more likely than you are to succumb to the seduction of undoing and the desire for someone to go back in time and fix things. Learn to recognize the symptoms of undoing in your clients’ language patterns: “You should have…” or “We should have…” or “If only…” or “I told you so!” Anytime a client returns to the past to try to change what happened or indulges in blaming you for his current pain, he is allowing the fast-thinking part of his brain to control behaviors and define your working relationship.

Next Steps

If you recognize this language pattern or bias in a client, immediately try to engage your slow-thinking brain. Then, rather than agreeing with the client’s perspective, point out that there was a thoughtful thesis behind the investment strategy when it was made in the past and that nothing can be done at this time to impact the past.

For highly emotional clients, try to stimulate their slow-thinking brain with this statement: “It sounds as if you are very unhappy with me for not predicting the future accurately.” This can awaken the client’s slow-thinking brain and help him think more clearly about his expectations. It can be helpful to remind him that with 20/20 hindsight, we clearly see conditions today, but those conditions didn’t exist when an investment decision was made. Looking back gives us the benefits of certainty, simplicity and time. None of these conditions was present when the investment was made, no matter how much our fast-thinking brain would like them to be.

For more on the dynamics of the past, present and future in conversations with clients, call (800) 247 4154 and ask for the AllianceBernstein Advisor Institute’s white paper How to Talk About Performance.

The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams.

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