Published on April 6, the article was written by Alison Gopnik, a psychologist.
The author relies on a study published in early 2023 in the journal Clinical Psychological Science. In this research, Gregory Mitchell from the University of Virginia and Philip Tetlock from the University of Pennsylvania tried to find out if Americans are optimistic or pessimistic by nature, if they believe that American society has improved or deteriorated in many respects and how close their views are to reality.
I confess that I strongly suspected the answers. One of the books I have enjoyed the most over the past few years is Factfulness, written by Hans Rosling, which deals with just such questions. Most of us tend to underestimate the progress that is taking place across the world in many ways: life expectancy, literacy, level of wealth, etc. Yet the facts clearly show a significant long-term improvement.
An aside is in order: I believe it is likely that life expectancy has fallen slightly in recent years due to the pandemic.
But back to the Wall Street Journal article. Ms. Gopnik writes: “Everybody they tested—young and old, conservative and liberal, news-addicted or not—showed the same pattern. Everybody thought that most things had gotten worse, even if they had actually gotten better. Pessimism reigned.”
In my book, I deal with this psychological bias that most of us have, and which significantly affects the returns of many investors. How many of us see more of the negative than the positive around us? And how much does this negativity bias influence our investment decisions? Isn’t the decision that many make to withdraw completely or largely from the stock markets when the headlines turn dark not the result of this bias? Or to overweight cash and bonds?
One of the factors Rosling cites to explain our penchant for pessimism is what he calls “the instinct of negativism”. It can be explained by the fact that bad news captures our attention more than good news. I think we have seen this trend recently with the calls for “financial apocalypse” by certain economists.
Moreover, we all tend to believe that living conditions were better before, 20 or 40 years ago. But this nostalgia is a lure that is often not based on facts.
I try as much as possible to remain optimistic instead of lapsing into negativism or defeatism. The stock market history of the last 100 years and that of the world economy for more than 200 prove that it is better to be optimistic in the long term.
Optimistic… while being cautious.
