Placebo

We’ve all done it.  We have stood on a street corner and pushed the “WALK” button, trying to change the traffic light so we can cross.  Little did we know that we were pushing a placebo button.  That’s a button which does nothing other than give you a sense that you’re in control.  It feels better than being a submissive weakling, angry at the light and traffic.  New York City doesn’t hide the fact that only about 120 of the 3,250 crosswalk buttons in New York are actually functional.  The rest aren’t even connected.  (source:  Popular Mechanics)

The elevator door close button is even more common.  The National Elevator Industry says that they basically don’t work at all.  Why?  Because the Americans with Disabilities Act (1990) mandated that elevator doors have to stay open long enough for a disabled to board the elevator.  Have you ever pushed the door close button and the doors closed?  Almost certainly a coincidence.  All you’ve done is hit the button just when the program is closing the door any way. 

Same for the hotel room thermostat.  You walk in the room and think “it’s hot in here.”  So you change the thermostat setting.  In many cases, it just turns on a fan, making you feel like you’re in control.  People actually feel cooler once they’ve turned down the thermostat, even if the temperature is the same.  Let’s say you are not that easily fooled, so you wind up calling the front desk….”My thermostat isn’t working.”     The clerk tells you “sorry about that”, and they send up someone from the maintenance staff.  Meanwhile, the front desk clerk says to his co-workers……”The guy up in 410 thinks the thermostats actually work”.  They all giggle.

What’s this all have to do with financial planning and investing?  During periods when the markets are posting only small gains, or falling, some investors get really itchy to “just do SOMETHING” to try to kick start things.  Buy something else, sell something for no great reason, swap one position for another……..just do something, anything! 

Have you ever seen the screen of an online stock trading website?  They look like giant video games.  Those sites display tons of brightly flashing lights on the dashboard, offering you the illusion of control, as though you’re sitting in some sort of cockpit with switches to flip and instruments to make moves with.  They are enticing you to trade, and trade a lot, by giving you constant empty placebo feedback. 

The act of doing something creates that perceived (but completely false) control, when really most investors would be better off sitting on their hands.  As the English biographer Samuel Johnson said, “Great works are performed not by strength, but by patience.”

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