Post-pandemic, people will go back to the way they were before.

 

Many of us have been wondering how many of the new habits that people developed during the pandemic will continue once it ends.

 

Research tells us that the answer is very few.

 

People don't like change.  When things change, people tend focus on what they will lose.  And because we hate to lose - we hate change.

 

If we do want to make changes then we need to do it in small sustainable steps.  Otherwise we will go right back to where we started once the pressure to change is off.

 

That's what's happening now.

 

The pandemic forced dramatic unwanted change on all of us.  Now that restrictions are being lifted we see evidence of people reverting "back to normal."

 

Specifically retail sales dropped 1.3% in May, as consumers shifted spending from big-ticket household items to goods and services related to going out.  Spending on autos, electronics and building materials have all declined.  And there's a surplus of toilet paper available now. :-)

 

On the winning side - movie theaters, restaurants, casinos, gyms and fast fashion have all seen sales increases.  (Cambon, 2021)

 

Expect to see more of the same.  Old habits are hard to break.

 

 

Cambon, S. (2021, June 15) Retail Sales Dropped 1.3% in May as Pandemic Shopping Habits Shifted. wsj.com.  Retrieved June 22, 2021, from  https://www.wsj.com/articles/us-economy-may-2021-retail-sales-11623701250

Are you worrying about the worst case scenario?

Whenever we deal with a situation, there are a variety of possible outcomes.  Part of the decision-making process should be reviewing those options, identifying the most probable one, and proceeding from there.

 

So why do I leap to the worst possible outcome and begin worrying?

 

It's human nature.  We are hard wired to fear losing.  In fact, we fear losing more than we like winning.  That's why we are risk adverse.

 

But the truth is that the "most likely" outcome is seldom the "worst case" outcome.

 

If I could only remember that, I would worry less.

 

Instead, I think of this joke:

 

A man on death row was on his way to be executed.  As he walked down the corridor with his guard, the guard asked: "Are you worried?"  The prisoner responded: "Why?  Would it help?"

 

Then I laugh and try to stop worrying. 

 

Sometimes it works.

 

Biden will be our next President because Americans want things to go back to "normal."

People don't like change.  They worry that the change will be for the worse and that they will lose something in the process.  So "loss aversion" kicks in.  (see this blog -- http://pjlehrer.blogspot.com/2020/02/whats-driving-your-investment-strategy.html)

That's why if you do want to change, you need to do it in small sustainable steps.  A little bit at a time.  The same way that you would taper off an addictive medicine.

While the minority who put Trump in office wanted change, the other 70% of America did not.  And one wonders now if even Trump's supporters have grown weary.

When faced with too much change people resist.  And when they can, they go back to the way things were before.

So it wasn't surprising that Biden has emerged as the Democratic candidate for President.  And that when asked why they were supporting him, people said that "they wanted things to go back to normal."

And that is why he will win in November. 

Nuzzi, O. (2020, February 28)  'Biden Is Going To Kick Ass Here Because This Is a Normal Place."  nymag.com.  Retrieved March 11, 2020, from  https://nymag.com/intelligencer/2020/02/bidens-south-carolina-base-finally-has-reasons-to-believe.html

What's driving your investment strategy? FOMO or loss aversion?

The Dow Jones dropped 1,032 points on Monday and 879 points on Tuesday due to concerns about COVID-19.  It seems logical that a slowdown in activity would negatively impact the global economy.  And since things were already heading downhill last year - GDP growth in 4thQ was 2.1%, before corrections which generally lower it significantly - we are not well poised to withstand a downturn.

So investors have to decide what motivates them more.  FOMO or loss aversion. 

We are hard wired to fear change.  And we hate to lose more than we like to win.  It's called "loss aversion."  In their seminal study on Prospect Theory in 1992, Tversky & Kahneman identified a two to one ratio.  Meaning that we hate to lose twice as much as we like to win. (Tversky & Kahneman, 1992)

On the other hand, we also hate to miss out.  That's why sales of tickets for Broadway shows soar after they announce their pending closure.  So that's where the FOMO comes in.  A move to safer investments could mean losing out if the stock market continues to climb.

So the question is which of these opposing forces will win out.  I'm betting on loss aversion.  How about you?

Tversky, A. & Kahneman, D. (1992) Advances in Prospect Theory: Cumulative Representation of Uncertainty.  Journal of Risk & Uncertainty.  Retrieved February 25, 2020, from

http://psych.fullerton.edu/mBIRNBAUM/psych466/articles/Tversky_Kahneman_JRU_92.pdf

Are curated collections the solution to too many choices?

Decision-making is hard work.  The more decisions we make, the more tired we get.  Eventually decision fatigue sets in we make poor choices.  Like reaching for a candy bar.

The internet with its endless volume of options has made things even worse.  I spend hours researching everything I buy and then still wonder if I have missed the perfect choice.  Because that's what it's all about - FOMO - fear of missing out. 

And since negative emotions are more powerful than positive ones we are all about "loss aversion," i.e. avoiding a decision that will make us feel bad.

Enter companies that are making it easier for us by offering fewer options.   Saatva offers five varieties of mattresses in standard sizes.  They also conveniently label one - best seller - for those of us who are looking for help from others to make our decisions.

It's an excellent idea.  And it probably benefits the company as much as the buyer since it limits the amount of merchandise they need to stock.

The idea seems to be catching on.  Especially among DTC (direct-to-consumer) brands.  Kitchenware maker Great Jones offers only five products. But they do come in five very instagramable colors including Blueberry and Earl Grey.   

Sounds good to me, how about you? ;-)

Joutz, M. (2018, November 12)  Get a Handle On Your Pots and Pans.  nytimes.com.  Retrieved July 10, 2019, from  https://www.nytimes.com/2018/11/12/style/millennial-cookware-dutch-oven.html