Allure of Forecasts
The brain has a lot of gray matter, but it hates gray areas. Uncertainty makes us very uncomfortable. This is because the brain is a planning machine. We plan our vacations, what to get at the store and we plan for our financial future. When situations are uncertain, we can’t plan effectively.
Right now, many of us are wondering if there will be a resurgence in Coronavirus, what the market will do and what the overall damage will be to the economy. Will people come out and begin to spend again as before, or will it be a very slow recovery? Will the situation get worse before it gets better?
In other words, there is a lot of uncertainty right now. And because of this, our brain may subconsciously be influenced by an illusion of certainty. The media is more than happy to feed that illusion of certainty. While analysts’ forecasts touted on TV are often very confident, they are seldom accurate. A study of over 6,500 prior forecasts found the average accuracy to be only 47%.
Our brains may be influenced to listen to forecasts, even though they are often wrong, because it provides a false sense of certainty – and the brain is attracted to anything that resembles certainty. This is why in times like these it is best to ignore the divers forecasts and ensure your investment decisions are based on your financial plan.
©2020 The Behavioral Finance Network. Used with permission