Make the right choices while under financial stress; avoid herd mentality

Wall Street woes can lead to financial stress
- but don't let it overrule rational thought.

According to today’s article, herd mentality rules during a financial crisis because people are wired to follow the crowd when times are uncertain (Herd Mentality Rules in Financial Crisis, Reuters).

Studies show that when there is little information but the threat seems to be imminent, people will tend to look around to see what others are doing rather than follow their own conclusions based on their own rational abilities and logical thought process. This behavior is evidenced by fear, anguish, and sadness, as we experienced following 9/11 and in supporting the government as it declared the war on terrorism.

It may also be reflective of several representatives voting or not voting for the bailout package, not because they were for or against it but because they were acting as a group. We also see this effect in the political election process, where the polarization becomes more evident with a “gut feeling” – liking or disliking the candidate – rather than honestly agreeing with the proposals from a rational perspective.

Consider the following tips while you are making the right choices:

1. Stay calm: Although some people believe staying calm means lack of activity, staying calm in a stressful event will give you time to think. If you are in a burning theater, you need to look for an exit, fast. But if there are multiple stressors around you, you are better-off grabbing pencil and paper, and writing all of these down so as to find solutions rather than starting bumping against a wall.

2. Prioritize problems and focus on solutions: As you now have your problem list, prioritize this list and then write down three potential solutions to each problem, designing a plan of action. Please note, if you say you are desperate about your financial situation, don’t panic if you can’t make it to your previously planned two-week vacation. Align your actions to your priorities and stay focused.

3. Listen to what’s happening around you but make your own decisions. Herd mentality can save you if the leader of the pack found the right exit but will kill you if you followed the leader to a dead-end cliff. Choose your wise mentors and make sure that, if you are to follow someone else’s advice, you have always looked up to the source. Look for all the potential solutions and then prioritize these options. Avoid being bullied to make quick decisions. Formulate your plan of action and then execute it.

4. Keep a positive outlook of the future. This is one of the hardest points these days as many people around us are constantly saying the world is coming to an end. Check your situation, get ready for action, and keep moving in the positive direction. This will keep you busy sharing good deeds with the world.