Control Freaks: Investors Seeking Order

There s something unsettling about static. In the Ring films, the spooky tape ends, the screen cuts to hissing static and that s when the creepy girl with the triple-jointed knees comes to eat your soul. Static is chaos. Chaos is uncertainty. And uncertainty is something that frightens us. And so, when confronted with static, we try to make it go away we look for patterns.

Why hasn t it rained in six weeks? Why is one person afflicted with disease and another not? Why did one stock go up 1% Wednesday? Why did the market close down six days straight before that? Why did one candidate win an election and the other candidate lose?

Static is all around us individual blips of data that may or may not add up to a larger picture. And, of course, some of it does fit into a larger picture. Why is it skin-scorching hot one day and bone-chilling cold another day? The earth has seasons, and they come and go in a predictable fashion. Spotting this pattern and using it to form predictions allows us to farm and feed ourselves.

It s when things are less certain that we run into trouble. We re in the midst of a random drought now it must be that the gods are angry. In fact, modern social science shows us that it s precisely when we feel a lack of control or feel ourselves surrounded by chaos that our pattern-seeking nature kicks into overdrive.

We like control. In experiments, it s been shown that just thinking we control the duration of painful electric shocks can make them easier to endure; similarly, just hearing the details of a painful medical procedure can reduce anxiety and shorten recovery time. Control makes us feel better, and seeing patterns makes us feel like we re in control like we can predict and prepare for what s coming next.

So, in a paper published in Science in 2008, management professors Jennifer Whitson and Adam Galinsky took a look, in a series of six experiments, at what happens to people s pattern perception when made to feel a lack of control. Will they start seeing patterns where none exist?

In one of the experiments, the researchers induced the feeling of a lack of control by asking participants to identify a pattern in the images a computer was showing them. There was no underlying pattern, in reality, but the computer was programmed to give half of the participants random feedback, telling them they were either correct or incorrect. After this task, all the participants were shown 24 snowy pictures half of which were just random noise, and half of which had grainy images embedded that were difficult, but not impossible, to perceive.

What Whitson and Galinsky found was that while almost all the participants identified an image in the snowy pictures where there was an image, the participants who had been made to feel a lack of control (the ones who had gotten the random feedback in the first part of the experiment) were much more likely to perceive an image in the pictures where there was none that is, in the pictures that were pure snow.

In another experiment, the researchers induced the feeling of lack of control by having people recall times in their lives when they lacked control. They then had the participants read stories where the characters achieved a particular outcome after performing a possibly unrelated activity such as knocking on wood before making a presentation at a meeting and then having their idea approved. Once again, Whitson and Galinsky found that the induced lack of control made people see patterns. In this case, they were more likely to exhibit a superstitious belief that the unrelated action (knocking on wood) was related to the outcome (the idea getting approved).

When you put these data points together with others, a relatively coherent picture begins to emerge. For instance, the tribal fishermen of the Trobriand islands, off the eastern coast of New Guinea who fish in the deep seas, at the mercy of sudden storms and unmapped waters have many more rituals associated with fishing than people who fish in shallow water. Baseball players have been shown to create rituals in direct proportion to the capriciousness of their positions, such as pitchers associating the shirt they wear with success on the mound. At the macro level, tough economic times have been shown to correlate with an increase in superstitious beliefs.

Whether it s watching the weather, trying to beat the house at roulette, deciding which underwear to wear for the big game, comprehending why bad things happen to good people, or figuring out why your portfolio s going up or down, your brain is going to look for the pattern. Even when finding an illusory pattern may lead you to do stupid things. It s the nature of the beast.

Humans, at the end of the day, are pattern-seeking animals. If there s a pattern to be found, they ll find it. If there s not a pattern well, they ll find it then, too.

Ryan Sager writes the blog Neuroworld at TrueSlant.com.

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