This won’t be pleasant but pause and think for a moment about the last time you behaved in a way that you weren’t proud of. Perhaps you were impatient with your children, gave a one-fingered salute to an inconsiderate motorist, or worse, maybe you said something truly hurtful to someone you love. Once you’ve pictured this scenario, I want you to consider the reasons for your bad behavior. Set this article aside until you’ve arrived at both the incident itself as well as your attribution for why it occurred.

Ok, welcome back. If you’re like most people, you probably attributed your ill-tempered actions to something contextual rather than something intrinsic to you and your personality. You likely chalked the impatience up to your kid’s nagging, the bird to the poor driving of the man in the red Camry, and the hurtful comment to your not having gotten enough sleep the night before. In every case, you blamed something or someone else for your acting out; you’re not a bad person, you’re just in a tough spot.

Unfortunately, we tend not to give our friends and neighbors a similar pass when it comes to their misbehavior toward us. If someone flips us off in traffic? It’s because they are rude to their core. If someone yells at us, it’s because they are a mean-spirited jerk. The pattern, something psychologists refer to as the “fundamental attribution error,” goes like this:

  • My good behavior is intrinsic (e.g., I’m a good person deep down)
  • My bad behavior is contextual (e.g., I haven’t had my coffee)
  • Your good behavior is contextual (e.g., She got lucky)
  • Your bad behavior is intrinsic (e.g., She cut me off because she’s evil)

This tendency, to which we are all prone, leads us to systematically overvalue our own willpower, restraint, and goodness, and under-rely on contextual cues when planning for our future. Sure, we’ll blame context after it’s all fallen apart, but our starting point tends to be, “I am good. I am smart. I am in control.” By assuming the best of ourselves – and the worst of others – we fail to grasp just how weak willpower truly is and how predictive situational variables are in determining behavior.

Consider the results of a 1973 study done at Princeton University, titled, “From Jerusalem to Jericho.” The study, conducted by two psychologists, began by surveying 40 priests on their reasons for having entered the priesthood, with answers ranging from a desire to help others to securing personal salvation. Once they completed the survey, they were asked to walk across campus to give a brief lecture on the parable of The Good Samaritan, a biblical account of a good-hearted man who stops to help a stranger in distress, despite the fact that they hailed from rival tribes.

The wrinkle (there is always a wrinkle when psychologists are involved) was that the participants were divided into three groups – high, intermediate, and low hurry – by the researchers. Those in the high hurry group were told that they were already late for giving the lecture, those in the intermediate group were told that they need to go right away to be on time, and those in the low hurry group were given ample time to get across campus and deliver the speech.

As the priests moved across campus, the researchers placed in their path a confederate of the study who acted as though he was in distress, slumping, coughing, and looking ill, as the soon-to-priests crossed his path. Now, you would certainly hope that a group of religious leaders in mind of the story of The Good Samaritan would stop and help a fellow traveler in need, but alas, only a minority (40%) did. Worse yet is that the best predictor of whether or not they stopped was nothing intrinsic to the priests like their level of religiosity or their reasons for entering the clergy. Instead, the best predictor of stopping or not stopping was the degree to which they had been told to hurry. As Richard Shotton writes in The Choice Factory, “In the high hurry condition, a mere 10% stopped, compared to 45% in the intermediate condition, and a full 63% in the low hurry condition.” Even in a sample of those who had devoted their lives to helping others, context overwhelmed commitment.

In The Laws of Wealth, I cite similar research around contextual cues, including:

  • Violence on the London Tube drops dramatically when classical music is playing
  • One liquor store was able to increase beer sales by over 50% and champagne sales over 75% by playing German and French music, respectively, on different days
  • Wealth, looks, and frequency of travel, all contextual cues, are the best predictors of marital fidelity even though most people assume that stated commitment levels will be

What’s fascinating to consider is that no person leaving a liquor store with a case of German beer will ever attribute their purchase to having been influenced by subtle, contextual cues. Instead, they will likely shrug their shoulders and say, “I dunno. It just sounded good.” Every hour of every day, our decisions are impacted by a host of externalities that we seldom consider, choosing to believe in the myth that we are wholly control of our own choices.

So, what does this all mean for advisors and clients hoping to make decisions in capital markets? Here are just a few of the implications:

  • In a very real sense, your clients’ portfolios are the investment environment that they inhabit. Ensuring that they are appropriately allocated, in a manner consistent with their risk and behavioral preferences, is more important than any lesson you can ever teach them.
  • Educating clients is a necessary part of an advisor’s job, but it is hardly sufficient to keep clients from making poor decisions. Indeed, much of how we educate our clients should be around directing them to create an optimal decision-making context (e.g., avoid frequent checking of accounts, avoid sensational news stories, etc.).
  • Your office should be a reflection of the optimal environment for making investment decisions. Most advisors I know counsel their clients to avoid cable financial news but, inexplicably, have cable financial news playing in every office in the building. Avoid a waiting room full of money magazines and financial news that can lead your clients down a bad path.
  • Counsel your clients directly around decision-making “hygiene” which will include both do’s (exercise, adequate sleep, proper nutrition) and do not’s (excessive trading, letting politics impact investment decisions). We seldom consider this, but many of the same things that make us healthy and happy elsewhere in life also lead us to make sound financial decisions.

It can be discomfiting to realize that our willpower is so constrained and that context can play so profound a role in the direction of our lives. But there is also freedom in understanding how our environment directs us and taking pains to ensure that we are headed in the right direction.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a registered investment advisor.