Monday, April 21, 2014

Death of the Stock Market

I joked to my sister one day that I predicted the death of the stock market in about 20 years.  With padded playgrounds, car booster seats and all the other regulations and mandatory protections for our children, upon reaching adulthood they will have no concept of risk.  Who will be around to buy stocks or participate in other risk/reward financial transactions?  My sister who works at a school set me straight.  She informed me that the opposite was true from her observations.  The kids on the playground now take more risks than we did growing up, hanging from one knee instead of two for example, taking advantage of, or in some cases, negating the advantage of the added padding.

In the parlance of psychology, it’s called risk homeostasis.

Risk homeostasis is a controversial theory that the safer an individual feels, the more chances he is inclined to take in order to return to what he considers an acceptable level of risk.  There are many examples both for and against this theory.  A classic one comes from Sweden.  When they changed from driving on the left side of the road to driving on the right there was a 40% drop in accidents due to the extra caution exercised as drivers got used to the new feel of maneuvering the car.  A few years later, this feeling of caution stemming from the unfamiliar orientation wore off and the accident rate returned to its former level.  Several other interesting examples are listed in this Wikipedia summary. 

It is a controversial theory, which may not apply in all cases, but it's interesting to consider some possible behaviors where it might.  If parents today expect the world to take over for them with built-in safeguards, their complacency might backfire.  As they spend more at the grocery store, avoiding genetically modified food, indulging their love affair with organics and all natural products, does that make it more likely the kids will become fast food junkies when not supervised?  Does the problem of teens (and others) texting and driving relate to efforts to make automobiles safer and safer?  Do the actions of “helicopter” parents coming to the rescue of their children lead to expectations of a false sense of security resulting in situations like this one where a mother sued because her 19-year-old died from an overdose of an energy drink?  Surely part of parental responsibility consists of an appropriate mix of protection and teaching children that behavior has consequences.  This balancing act, which Bill Cosby calls “some kind of judgment” or “taking back the house,” seems to make sense with or without a controversial psychological theory.

I guess a prediction of the death of the stock market was off base, but a call for better parenting and a bias toward moderation is always a good reminder.

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