Future Guardian,
You know what really messes us humans up?
Volatility.
We have this seemingly strange programming built in that does NOT allow us to understand very well the nature of volatility and its impact on our lives.
We see up, we feel like it's all gonna go up.
We see down, we feel like it's all gonna go down.
Yet, we live in a world where nothing goes up continuously and everything that goes up must come down.
(Sometimes they go back up, and sometimes with a long enough time horizon the up is seemingly inevitable, but you have either ignore what's going on, or accept the volatility)
Let's talk about our basic human programming, why we are like this, and what we can do about it now that we have clarity.
Our basic human programming
There are several biases which relate to how we perceive past present and future events - explaining how our future perception is impacted by our past experience, and how this plays together to make volatility something we can't naturally handle well.
Recency Bias: This bias leads people to weigh recent events more heavily than earlier events. This is possibly the bias most directly related to that dynamic of "up = going up more." This is one of the most common experiences in Crypto, where we'll see a coin start to go up and people will literally draw lines on graphs up into the clouds.
Confirmation Bias: This involves favoring information that confirms existing beliefs. This one is tough, because we live in a world where it's possible to confirm ANY belief you might have. Think about whatever it is you might question, and it's most likely possible to find a viewpoint which will support what you want to hear.
If you start doing well in business, chances are you'll find people who will tell you your doing well and you should keep going, but if you're suspicious about your success, you'll probably find people to confirm that suspicion. This bias feeds into our natural expectations - up = more up - and therefore serves to set us up for failure when volatility inevitably hits.
Overconfidence Bias: This bias leads individuals to overestimate their knowledge or ability to predict events. This bias feeds other biases. Remember that bad thing which just happened? You're gonna think you're really good at predicting what will happen next (down go more down).
Availability Heuristic: This cognitive bias involves overestimating the likelihood of events that are more readily recalled. Another related bias that has us overvaluing recent experiences and feeding our future perception and expectation in a way that is not useful.
Anchoring Bias: This occurs when individuals rely too heavily on an initial piece of information (the "anchor") to make subsequent judgments. This happens all the time in marketing, where you're exposed to a higher price and then a discount is presented to you. But you can also see this in situations like Crypto, where especially in the case of a bull run, you may see MANY people talking about how some coin is going to "moon."
Understanding these biases can help in recognizing and potentially mitigating the misperception of volatility in various domains, such as financial decisions, health behavior, and interpersonal relationships.
Before we get into that, I want to visit an interesting scientific study, which also supports the impact of these biases, how we perceive Volatility, and how it impacts our decision making.
The phenomenon where past experiences, particularly recent ones, shape our expectations and perceptions of future events is a complex interplay of memory, perception, and cognitive biases.
How Expectation Influences Perception: This is a study conducted by researchers at MIT where they explored how the brain encodes prior beliefs and utilizes them in controlling behavior. In their experiment, animals were trained to reproduce time intervals in different contexts (short or long).
The study found that animals, like humans, tend to bias their responses based on prior beliefs. For instance, if they expected a short interval, they would slightly underproduce an 800-millisecond interval, and overproduce it if they expected a long interval.
In other words, their prior experience significantly influenced how they perceived and responded to future similar situations.
It makes sense that we'd be built this way from a survival perspective. But in our modern life, this built in "programming" (and all the above biases) leads us to be vulnerable to these situations which are instigated by Volatility.
Instead of worrying about survival in the wild, we are exposed to Information Overload, Rapid Paced Environments, Social Media Echo Chambers, a higher degree of Complexity and Uncertainty in everyday life, Rapid Technological Advances, and all the impact this has on our attention span, perception, and beliefs.
BUT WHAT DOES THIS ALL MEAN???
Enough of the Biases and the Scientific Research Papers. Let's get down to the meat of it.
What the hell does this all mean for YOU in your life?
The short answer is,
All of those biases and the research points to one thing:
Your perception of what is to come is HEAVILY influenced (one might even say dictated) by the experience you have just had.
YOU CANNOT ESCAPE THIS. I can't stress this enough. It doesn't matter whether you are aware of this dynamic or not. You are subject to it. You WILL feel what's to come based on what just happened.
Here's how that can and often looks. We'll consider Health, Wealth, and Relationships, because conceptually it's easy to see where we get tripped up.
Health
Everyone who's tried to lose weight has experienced the ups and downs. You start a new diet, you lose a few pounds, everything is looking glorious and then ... you have a day where your weight goes up.
Two things happening there.
First, your expectations are broken. Because you were experiencing your weight going down in recent memory, you expect your weight to continue to go down. It doesn't. That means something is wrong. Something is broken. Something isn't working. Maybe something is wrong with you. Maybe you just can't make a diet work. These are all thoughts and/or feelings you may experience as that expectation is broken.
Secondly, now you expect your weight to go back up. It just went up, so now as you look forward you are thinking oh no, it's all going to go up again. I only just started and already I'm getting fatter. It's all terrible. It's doomed.
That's the snap emotional response from the way we are built. We start having success and think we should continue having success, at some point the expectation is broken because it's never a straight line, we start to doubt everything and now believe we're headed directly into full failure.
Wealth
Let's skip right to the most obvious experience, where we're most vulnerable to our volatility blindness. Because skilled investors will understand the nature of volatility and they will have systems in place that make it possible to make good decisions despite their human response to volatile situations.
Money goes up. Money goes down. The stock market, crypto, business. No matter where you are dealing with wealth, revenue, income, etc, you are exposed to seemingly random, and certainly unpredictable ups and downs.
For the purposes of this example: Crypto.
Many people reading this will certainly be familiar with the tendency for people to start talking about a coin "going to the moon" as soon as it starts going up. We see green chart up we think YEA MILLIONS! And then it jogs down and we think IT'S A FAILURE!
That's clear right? It's one of the most obvious examples of all the biases and our biology in action. We experience our portfolio rise, and we think it's going to keep rising. So when it obviously inevitably goes down we feel like it's all going to crap.
How do we handle this? I'll get to that.
Relationships
Perhaps the area which is hardest to clearly see, but I think likely the area where most people can benefit from the awareness.
Lets start with the obvious example. The Honeymoon. It's almost a trope that there is a "honeymoon period" after marriage, following which the relationship ends up in the toilet.
In that example, we can see how the breaking of that expectation can cause a large amount of emotional dissonance. You get married, it's a wonderful beautiful ceremony, your life feels changed now significantly, you're on cloud nine, you go on a wonderful trip, then you come back to regular life and ... the feelings don't match what you just experienced. Dissonance. Breaking of emotional expectation. Now your biology feels like it's all going to hell.
Doesn't have to be marriage, this happens in any new relationship which starts on a high note. It happens in business relationships which start on a high note (you'll see us talk about Peaks vs Valleys).
But let's move away from the breaking of emotional highs and just talk about everyday relationships. How many times have you had an interaction with a loved one or a friend and you have left that interaction feeling like everything is now going poorly?
This can happen from a simple miscommunication. But in the moment, because of what we have just experienced, it can feel like everything is now going poorly. This can lead us to spiral in the relationship following a path where we think it's going poorly, and that feeds our ongoing expectations and behavior.
In many ways that is a simplified explanation of what can happen because relationships are highly complex systems. But it highlights how one single negative experience can easily spiral. Our expectation of what should be is broken, its not good now, it’s bad, and we start to expect it to be bad and follow that feeling.
How do you solve that problem?
What we can do going forward
Recognize that what you have just experienced is not the TRUTH of what IS.
This does not solve the problem. Remember you are subject to your biology and biases. Even if you are aware that what you have just experienced IS influencing how you feel about what you will experience. In the case of relationships, the solution isn't to be aware of it, the solution is indirect of the impact that volatility has.
In the spirit of systems and emergent properties, instead of trying to directly change how we perceive Volatility, we can create systems around us which make the volatility less relevant.
In other words, we're going to shift our attention so that what we are focused on inherently has less volatility around it. If you focus less on what has just happened, and focus less on what you expect to happen next, you are inherently less focused on the unavoidable emotional impact of volatility.
We're also going to lean into our newfound understanding that "up" doesn't "always mean up" and "down" doesn't "always mean down." Or to say it another way, when things start going up we're going to recognize that internally we *feel* like it's all going straight to the moon, but we know better. And the same for when things go down. It's going to *feel* like everything is doomed, but we know better.
One of the tenants of emergent systems is that you must let go of control. You do not control volatility. It will happen. Like waves in a storm, we focus on building a boat that rides swells naturally.
There are many useful frameworks for building our emergent system that protects us against the swings of volatility. Including Solvable Problem™1, Raise the Floor, Frequency of Exposure2, Next Best Step3, and many others.
For the purpose of this article, I'll detail two key perspectives that are really helpful, especially in the context of highly volatile situations like money (crypto, business, etc). Raising the Floor, and Frequency of Exposure.
Raise the Floor.
You can read the full article on Raising the Floor4 here. In short, raising the floor is about shifting your perspective from reaching for higher highs, to instead focusing on building higher lows. Less perceptive exposure to volatility, and that alone makes it easier to just live.
Raise the Floor in Health: Instead of focusing on the thing we don't have direct control over (our weight), we're going to focus on the things we DO have direct control over and slowly raise the floor. For example, if you don't currently walk 10,000 steps a day, you can start by saying "I'm going to walk 10k steps each day this week." When you accomplish doing that a week straight, do it 2 weeks straight. Then a month. This is not prescriptive, this is an example of an approach that is raising the floor.
Raise the Floor in Wealth: Instead of focusing on getting more money, focus on losing less money. What this looks like on a high level is, instead of focusing on getting more upside, you focus on reducing your risk. In crypto we often do this by building a base of our assets in a coin we believe in (our base case), and a stable asset (for example, Guard + USDT). We combine this with our solvable problem in a long term perspective. We aren't trying to get $10 million on the next bull market, we are focused on stepping toward $10m in 10 years (for example), and reduce our risk as much as possible along the way.
Raise the Floor in Relationships: Instead of focusing on and driving toward higher highs - the emotional high of the honeymoon - focus on an enjoyment of the mundane everyday life. Instead of trying to be right and get what you want, focus on connection, communication, meeting the other person, letting go of every need outside of that connection that you have. Be wrong.
And more importantly than anything, do the work you need to know yourself. Because, if you can't love yourself, how can you love anybody else?
Frequency of Exposure.
This is possibly the most useful tactic which can insulate you from the negative exposure of volatility. If you don't look at the data, you don't see the volatility, you don't have that exposure.
On a baseline, if you are looking at data which is not relevant to your decision making, then you are just wasting your focus, your energy and exposing yourself to the negative impact of Volatility for no benefit.
In health this is restricting your focus to the things which only matter to your decision making. If you are thinking "I'm going to walk 10k steps a day for a month," personally I would only look at my weight at the beginning of that and at the end of that. Seeing my weight go up and down is not going to be relevant to my goal of walking 10k steps a day for a month. But all other things being equal, seeing that data at the end of the month, alongside my experience of doing that work, is going to give me clear decision making criteria to move forward.
In wealth this is, making your investments and predetermining your decision making criteria for when you'll make changes, and then NOT looking at the charts.
In relationships, this is perhaps more complicated, because a relationship is not data. But to me the core of this is around being present. When you are in the present, with your people, accepting them as they are, knowing yourself better, then you are not giving attention to what may be good/bad. You are just being.
Be Present
Find the parts of your life where you are exposed to information which influences decision making and recognize the most recent exposure is going to have outsized influence.
Live in the present moment. If you do, you aren't dwelling on the past, you aren't worrying about the future, there's nothing to influence your perception outside of reality because you're just IN reality.
Every framework we talk about in TGA is built to separate you from these inevitable volatile uncontrollable influences, so you can just live and be in the present moment, and allow the life you want and need to emerge around you.
Be In The Present Moment - and let go of what you think was or what should be. Build systems around yourself that allow the outcome you wish to emerge while you live in that present moment. And you might just find Volatility becomes your friend.