Trading Psychology Article (Not By Design): Richer People Take Greater Risk

And 'taking greater risk' can run into the 'hazardous' areas, too.

This article, on the express surface, isn't about trading or investing. Underneath that surface, maybe we can all deduce some lessons about trading psychology.

The Rich Are More Oblivious Than You and Me



By RICHARD CONNIFF
Published: April 4, 2007


THE other day at a Los Angeles race track, a comedian named Eddie Griffin took a meeting with a concrete barrier and left a borrowed bright-red $1.5 million Ferrari Enzo looking like bad origami. Just to be clear, this was a different bright-red $1.5 million Ferrari Enzo from the one a Swedish businessman crumpled up and threw away last year on the Pacific Coast Highway. I mention this only because it’s easy to get confused by the vast and highly repetitious category “Rich and Famous People Acting Like Total Idiots.” Mr. Griffin walked away uninjured, and everybody offered wise counsel about how this wasn’t really such a bad day after all.

So what exactly constitutes a bad day in this rarefied little world? Did the casino owner Steve Wynn cross the mark when he put his elbow through a Picasso he was about to sell for $139 million? Did Mel (“I Own Malibu”) Gibson sense bad-day emanations when he started on a bigoted tirade while seated drunk in the back of a sheriff’s car? And if dumb stuff like this comes so easy to these people, how is it that they’re the ones with all the money?

Modern science has the answer, with a little help from the poet Hilaire Belloc.

Let’s begin with what I call the “Cookie Monster Experiment,” devised to test the hypothesis that power makes people stupid and insensitive — or, as the scientists at the University of California at Berkeley put it, “disinhibited.”

Researchers led by the psychologist Dacher Keltner took groups of three ordinary volunteers and randomly put one of them in charge. Each trio had a half-hour to work through a boring social survey. Then a researcher came in and left a plateful of precisely five cookies. Care to guess which volunteer typically grabbed an extra cookie? The volunteer who had randomly been assigned the power role was also more likely to eat it with his mouth open, spew crumbs on partners and get cookie detritus on his face and on the table.

It reminded the researchers of powerful people they had known in real life. One of them, for instance, had attended meetings with a magazine mogul who ate raw onions and slugged vodka from the bottle, but failed to share these amuse-bouches with his guests. Another had been through an oral exam for his doctorate at which one faculty member not only picked his ear wax, but held it up to dandle lovingly in the light.

As stupid behaviors go, none of this is in a class with slamming somebody else’s Ferrari into a concrete wall. But science advances by tiny steps.

The researchers went on to theorize that getting power causes people to focus so keenly on the potential rewards, like money, sex, public acclaim or an extra chocolate-chip cookie — not necessarily in that order, or frankly, any order at all, but preferably all at once — that they become oblivious to the people around them.

Indeed, the people around them may abet this process, since they are often subordinates intent on keeping the boss happy. So for the boss, it starts to look like a world in which the traffic lights are always green (and damn the pedestrians). Professor Keltner and his fellow researchers describe it as an instance of “approach/inhibition theory” in action: As power increases, it fires up the behavioral approach system and shuts down behavioral inhibition.

And thus the Fast Forward Personality is born and put on the path to the concrete barrier.

The corollary is that as the rich and powerful increasingly focus on potential rewards, powerless types notice the likely costs and become more inhibited. I happen to know the feeling because I once had my own Los Angeles Ferrari experience. It was a bright-red F355 Spider (and with a mere $150,000 sticker price, not exactly top shelf), which I rented for a television documentary about rich people. It came with a $10,000 deductible, and the first time I drove it into a Bel-Air estate, the low-slung front end hit the apron of the driveway with a horrible grating sound that caused my soul to shrink. I proceeded up the driveway at five miles an hour, and everyone in sight turned away thinking, “Rental.”

The bottom line: Without power, people tend to play it safe. Given power, even you and I would soon end up living large and acting like idiots. So pity the rich — and protect yourself. This is where Hilaire Belloc comes in.

He once wrote a poem about a Lord Finchley, who “tried to mend the Electric Light/Himself. It struck him dead: And serve him right!” Belloc wasn’t tiresomely suggesting that the gentry all deserve a first-hand acquaintance with the third rail, as it were, but merely that they would be smart to depend on hired help. In social psychology terms, disinhibited Fast Forward types need ordinary cautious mortals to remind them that the traffic lights do in fact occasionally turn yellow or even, sometimes, red.

So, Eddie Griffin: next time you borrow a pal’s car, borrow his driver, too. The world will be a safer place for the rest of us.

Richard Conniff is the author of “The Natural History of the Rich.”

 

this is a good one

 

Good stuff.

Now we all know that the richies that rely upon chauffeurs are the most dangerous; rich, powerful and SMART!