Regular readers know that a staple of this column has been commentating on mankind’s psychological shortcomings and how these impact capital markets, a field known as behavioral finance. Armed with a new data point, today I revisit our proclivity for pessimism. Something I think most know in the abstract but tend to forget in the particular is that the pessimistic case on a given topic always, always sounds more sophisticated and fully informed than the optimistic one.
Since this is an economics and capital markets-focused column, we can rephrase the preceding sentence to read: The bear case always sounds smarter than the bull case. The “glass is half empty” arguments tend to go deep into the complexities of specific details, creating the appearance of rigor. While neither pessimists nor optimists hold a monopoly on accuracy, it is worth pointing out that, at least in this country, over the medium-to-long term, optimists have generally made a lot more money than pessimists despite lacking the most compelling argument.
Frankly, this relationship holds over most short periods too. For instance, consider a cocktail party setting. Attendees A and B, both prominent political kingmakers from opposing parties, cite President Biden’s disastrous debate performance (It seems on this point Democrats and Republicans can agree.
) as likely contributing to political chaos that will rattle markets in the coming months. Attendee C, who keeps his political leanings mostly to himself, o.
