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Staying rational in extremely uncertain times

Audio Version

In this extraordinary time of political and economic change, which is being fanned by online “fake news”, we need to reflect on being rational to get through this time of extreme uncertainty.

Equity markets are fluctuating wildly. The JSE collapsed 35% into March and subsequently recovered, to then decline 11% in the last 3 months and then sharply rebound. Similarly, the Rand/ Dollar spiked to 19 (+33%) and since fluctuated as much as 8% in a few days as it moved down to 15.6.

Against the background of the constant barrage of information and “news flow”, it can be very difficult to remain rational and reasonable. We summarise an introspective article from Prudential that discusses how to deal with irrationality with the aim firmly set on a reasonable outcome.

Three suggestions on how to be more reasonable when approaching rationality:

Delay your intuitions: Areas with human influence (such as investment markets) are usually more uncertain. So, in these areas, delaying your judgement/intuitions, one has a better chance of constructing a more complete picture.

Seek out and listen to the dissenting voice: It’s too easy to reach a verdict on readily available information and be influenced by social media biases, often leading to incorrect conclusions. Listen to those that have different beliefs or information, which will enhance your understanding of prevailing circumstances.

Build in disciplines for decision making: In times of high uncertainty we tend to be emotional and make irrational decisions. Therefore, make rules in calmer times to assist you to be rational in the heat of the moment.

As human beings, we are all irrational in some circumstances. Hence, we need to prepare for these moments of irrationality and aim for a reasonable outcome.

 Beware of human biases:

  • Just because you are proficient in one area does not translate into being proficient in several others.
  • Do not think that your skill is more valuable than other skills.
  • Guard against personal confirmation bias as one cites specific examples to reinforce your views.
  • Recognise that your particular skill may have little bearing on the objectives you are trying to meet.

If we are aware of our human biases, it will empower us to minimise misjudgements and enable us to make more rational decisions.

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