The science of decision-making has made significant progress over the last decade in examining how decisions are made. I know I have mentioned it before, but it bears repeating — our emotions play the part of the captain of our decision-making ship. Working in the sales arena I have seen this play out in fascinating ways. That is why the vast majority of people are really bad at the money game. Money carries such heavy emotional baggage that from the start our decisions are rarely rational even though most people would disagree with this statement.
Fear, greed, envy, distrust are all very strong emotions. I recently had a potential client bail on purchasing an EIUL that strongly demonstrates this process. I know that Jeff has seen this in play with his business, as have most people in a sales position. Sometimes when you expose the process people can adjust and overcome. Warren Buffett has been making statements for years with this in mind like this; “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”
I had a high income/high net worth surgeon contact me about an EIUL. He had already read a book on EIULs and had found me through my website. We have had more than a dozen long e-mails and several phone conversations. Obviously he was a detail-oriented man and spent much time putting figures into his spreadsheet. At the end of the process he said he was ready to proceed and we took an application.
A couple of days later I got an e-mail from him. His wife, who worked for a large insurance-based financial services company had told him she wanted to check out the product and the company he chose because she was unsure of the “risks.” She further said she had a contact that was an expert on EIULs. At that point I knew the deal was dead. She was basically saying she did not trust the product or the companies that offered them. All that rational work this executive had done up to then would be thrown out the window based on distrust and fear. As I predicted a week later I received the e-mail that stated they would not be purchasing the EIUL because the policy was one-sided with all the power in the insurance companies hands.
I’m not telling you this story to say this couple was wrong or right [it was their decision after all], just to demonstrate the power of emotions to derail our rational brain. He had spent hours pouring over the illustrations, even discovering little points that I was unaware of that favored EIULs. Built multiple spreadsheets to make sure there were no hidden charges. Run different numbers through the spreadsheet to see how the policy will react under different environments. His rational work came up with a purchase decision. And based on undefined fear their ultimate decision was a no-go.
Jeff has told me about similar situations with investment real estate purchases.
The financial data is complete with evidence that most people buy high and sell low, doing the opposite of what Buffett suggests. Stock traders pay big bucks to people who claim they can adjust a traders’ psychology to override their emotions.
We all need to work on conquering our fears and letting our rational brain help us. I always ask the question, what are my fears and are they based on reality before making a big decision. This helps me to separate out the two sides. I don’t always make the right decision, but rarely do I have to look back and say I let irrationality reign supreme.
Ultimately, I know our emotions will be in charge, but I feel better just exposing the process to the light of day and working on getting my rational brain some space to work.
BawldGuy Here: I had to learn this lesson myself many moons ago. One day, a favorite mentor pulled me aside. He knew I’d researched a particular property to within an inch of its life. He also knew I’d given it thumbs down as a result of my own objectively ruthless analysis. Yet, I was still gonna buy it — why? He told me it was irrational — nothing more, nothing less, but in um, somewhat more colorful language. I did an abrupt ‘about face’ and tore up the offer before it was sent.
From that day forward, ’til he passed away several years ago, he rarely called me anything but, “Boots on the ground, Brown”, which is a badge of honor I’ll wear forever. (This is the first time that story and/or name has seen the light since he passed.) What a treasure he was.
But he was right — and that’s exactly what David’s saying. Have a good one.
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