There’s a bubble in catastrophizing. This is the tendency to always assume the worst. Which is weird because the worst rarely plays out. In fact, even in worst case scenarios the financial markets have tended to stabilize fairly fast. Larry Swedroe had a good piece today on the trend in catastrophizing everything noting 3 particularly scary instances:
There’s a huge bubble in doom saying. I don’t know if it’s the boom/bust cycle of the last 15 years irrationally impacting psychology or what, but these perennial predictors of doom seem to spend a lot more time being wrong than right, but disproportionately hog the airwaves. It’s probably our tendency towards loss aversion, but despite vast evidence of this bias in the behavioral finance space on this topic¹, we just can’t seem to break free from our obsession with the end of the financial world….
NB – Am I the only one who isn’t too stupid to properly enunciate the word catastrophize?
Sources:
¹ – Prospect Theory: An Analysis of Decision Under Risk, Kahneman and Tversky
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