With the recent market turmoil driven by the coronavirus pandemic, people around the world are understandably worried not only about the safety of their loved ones but also about the status of their life savings.  In turn, financial advisors are working hard to help their clients think about (sometimes substantive) mid-course corrections to their plans but, at the same time, avoid panicked emotional reactions that could have even more detrimental effect down the road, and instead try to remain rational about their portfolio decisions. Yet the irony is that, in some circumstances, the process of becoming more emotional may actually play a crucial role in helping us address our irrational beliefs, and therefore the path to more rational decision-making may actually demand that we get more emotional first!

Research has found that emotions can play an important role in influencing decision-making by helping us form predictive models of the world that we are navigating. Our “emotional brains” can associate certain emotions with past memories and experiences that become encoded in our long-term memory (a process referred to as memory “consolidation”). Often this works well (e.g., don’t be mean to my friend, because then they won’t be my friend, and then I’ll be sad), but sometimes our emotional learnings can be triggered even when it is inappropriate for a given context, and this can lead to harmful rather than helpful behavior (e.g., don’t be assertive, because assertive people are rude, and people won’t like me if I’m rude).

In their book, Unlocking the Emotional Brain (UtEB), psychotherapists Bruce Ecker, Robin Ticic, and Laurel Hulley present a model of how emotional learning helps us navigate the world, and, importantly, how we can go about updating our emotional learning when it is leading us astray. According to the authors, we must engage in a process of memory “reconsolidation” in order to modify our emotional beliefs. The key to successful memory reconsolidation is to hold an emotional learning that is harming our decision-making in our consciousness—which involves getting into an emotionally activated state that really brings this emotional experience to the forefront of our mind—while holding some other experiential memory that contradicts the harmful emotional learning in our consciousness simultaneously. While our minds will generally be highly resistant to rationalizing away an emotional learning, the juxtaposition of two experiential memories in our consciousness simultaneously allows us to “unlock” a memory (i.e., deconsolidate a memory) and then change and “re-lock” that memory (i.e., reconsolidate) with some improved predictive model of the world (e.g., assertiveness isn’t always rude; perhaps we should be more assertive in the workplace than we are at a dinner party).

This idea has a lot of overlap with concepts such as Brad Klontz’s “money scripts” (i.e., beliefs about money which are so strong that we just act them out unconsciously). For instance, suppose John believes all rich people are evil (a money script) because some rich landlord wronged his family as a child. While there may be some logical basis for John’s belief in a very narrow context (e.g., perhaps his landlord truly did commit an evil act against his family), he’s currently overgeneralizing and that can be harmful. A key insight of UtEB is that we can’t just point this fact out to John and expect that the emotional learning will go away. Rather, we need to help him both unlock and modify this emotional learning by holding two contradictory experiential memories in his consciousness at the same time. The authors argue that, intentionally or not, many forms of therapy actually facilitate this type of juxtaposition which enables us to change our beliefs.

Similarly, in the current environment of turbulent markets, it may be important to acknowledge that we cannot simply rationalize clients away from their emotional beliefs. If a client is engaging in emotionally-driven investing, that investing may be rooted in some past emotional learning. Logic alone is not necessarily going to be enough to convince clients to stay the course. Rather, advisors may need to be able to help clients reconsolidate their emotional memories, which may require getting more emotional first before clients can update their predictive models of the world to incorporate the wisdom of not jumping ship.  This insight may also be useful when we encounter passive non-compliance (e.g., a client who agrees to take action during a meeting, yet fails to ever do so), as passive non-compliance might stem from a client’s ongoing (but perhaps unspoken) struggle with and emotional belief.

Ultimately, the key point is that sometimes more emotion, not less, is first needed to help clients make better financial decisions. Advisors can assist in this process by engaging clients in conversations and exercises which may help both identify the root cause of some problematic behavior (e.g., an emotional learning underlying a money script) as well as lived experiences which contradict this emotional learning and therefore can be used to facilitate a process of updating our predictive models of the world to better align with reality. Advisors who learn to do this well can reap the rewards of truly helping their clients improve their financial decision-making!

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