Former chairman of the Federal Reserve? Alan Greenspan has made with hindsight some interesting observations on fear in a Time Magazine interview published on November 4, 2013. Alan has been very honest about the positives and negatives of his tenure as Federal Reserve Chairman. Naturally, it is easy to look back in hindsight and make assessments.
However, of great interest to me was Alans perspectives on human behavior. He is clearly saying that if he had understood how much peoples animal spirits can take over in times of crisis such as in 2008 then he may have made different decisions earlier on. Further, he said that what he did not understand was the extent to which fear is a more potent emotion than greed.
In behavioral finance that would be recognition of the point that peoples fear of losses (aversion) is much greater than their desire for gains. Further, this is why when we are guiding people on making individual choices it is important to understand their natural instinctive behavior as that will drive their decision-making in times of fear and pressure.
The question for me is that would Alan have allowed interest rates to get so low starting back in 1996 if he understood the behavior of people? The economy may be different today ? although we will never know.
It will be interesting to see in the future how much the Federal Reserve looks at understanding the behavior of people as it makes key decisions.
Visit the Financial DNA website to learn more about our solutions for navigating the different behavioral styles and emotions of your clients.