How the metaphors we use to explain markets can steer investors into dumb decisions.
When the stock market plunges, we all go to Disney World -- or Six Flags. Buckle up for this roller coaster, the commentators tell us. Keep your hands, arms and assets inside the vehicle at all times.
The theme-park thrill ride is our most tired metaphor for market volatility. When the VIX spiked this year, roller coasters showed up everywhere on financial media in both words and images: on the cover of The Economist, on all the major financial networks and newspapers and, too often for my taste, on MarketWatch.
The language and imagery we use to talk about markets matters. In one of my first columns after becoming editor of this site in 2014, I said we were banning photos of traders on the floor of the New York Stock Exchange because these "human emoji" no longer reflected the modern reality of a market divorced from the physical space of Wall Street.
I shouldn't have stopped there. So in this, my final column for MarketWatch, I think it's time to retire the roller coaster as an illustration of volatility, because the metaphor is a mediocre visual joke that's unfair to both amusement parks and markets.
We lean on the rides to convey turbulence, because the hills, twists and inversions seem like stock charts drawn in real life, and the rides, like markets, induce anxiety, adrenaline, and enough G forces to empty your pockets or make you lose your lunch. So what's wrong with these images? To explore this question, I reached out to two uniquely qualified experts on the subject: 1. A professor of business and psychology who has studied how market metaphors impact the decisions investors make. And 2. A roller-coaster designer.
But first, it's important to consider how metaphors influence our thoughts and behaviors. In "Metaphors We Live By," a seminal work by the philosophers George Lakoff and Mark Johnson, they make the case that "the way we think, what we experience, and what we do every day is very much a matter of metaphor." What does this have to do with roller coasters? Well, as Lakoff and Johnson say, "the major metaphor in our culture is HAPPY IS UP."
When we feel good, we say we are up, we strive to climb the corporate ladder, we want to get a raise. Happy is definitely up on a market chart, unless you're a short seller. Up is more. Up is richer. Up is one step closer to joining the Great Resignation and jetting off to the Almafi coast. But the most happy moments on a roller coaster, as someone who loves roller coasters, are not the ups, but the most horrific, violent stretches of a market chart: the steep drops and wild turns.
"The ups and downs in the emotions don't correlate with the ups and downs in distance above the floor," said Brendan Walker, a London-based "thrill engineer" with two decades of roller-coaster design experience. "The points of sudden change are the most exciting moments, made to be scary as hell or fun and exhilarating."
The metaphor does work in one sense: Inching up the lift hill is a moment of building anticipation and nerves, Walker said. Like investors wondering if they should bail out before the bottom falls out, nervous riders whisper to themselves over and over again as the train lurches upward: "Is this the top yet?" Most of life is more like waiting in line for the ride than actually riding it, of course.
But remember, roller coasters, unlike volatile markets, are a form of entertainment, with each of the 90-120 seconds choreographed to neurotransmit a cocktail of maximal pleasure and excitement. "They seem to be very risky, but this is one of the most risk-averse industries around," said Walker, whose current venture, Studio Go Go, specializes in enhancing older rides with the addition of virtual reality. "A new ride costs $25 million and needs to appeal to 95% of visitors." They are designed to be a safe way to experience the feeling of risk, said Walker. "This is not skydiving or skiing black runs off-piste."
Theme-park rides sometimes end badly -- I once watched helplessly as my nephew was thrown from a carnival ride, thankfully sustaining only "minor injuries" -- but, for the most part, we can be fairly certain that we end up right back where we started, unscathed, maybe smiling, maybe muttering "never again," but no poorer for the journey.
Markets can be far more hazardous -- and so can market metaphors. Roller-coaster images may provide false comfort to investors, said Michael Morris, a business professor and psychologist at Columbia University. "It's a bit like the bubble metaphor, which suggests that once it has popped it is a safe time to invest, the danger is over."
In a 2007 paper, "Metaphors and the Market," Morris and his co-authors studied the impact a range of metaphors used by financial media had on investor decision making, focusing on two types: "agent" metaphors, which suggest the market is an animal spirit that climbs, claws, charges, or flies vs. that "object" metaphors, passive victims of gravity, as in "the Dow fell off a cliff." Presumably dead cats bounce into and out of the latter category.
"Humans detect the features of things that are self-propelled and the things that defy gravity and we treat them very differently," Morris told me. In experiments they found that agent metaphors made investors more confident that the current trends were likely to continue. Media commentary causes investors to take uptrends as meaningful signals and downtrends as something that can be ignored, the paper argues.
Even the market chart itself can mislead investors this way. The lines on a chart suggest continued trajectories, Morris said. Investors fared better after being shown tables of data as opposed to a chart, he said. Allusions to roller coasters might have a similar effect, his research found, since they have "unsteady but regular trajectories. And they may imply that the past regularity portends future regularity."
Behavioral economist Richard Thaler has joked that investors would be better off watching ESPN than a business network, and maybe he has a point. Financial journalists have a responsibility to think critically about the language and imagery used to explain the market. We should be up front about how little we know, and we should banish all the bears and B.S. We can do better.
Morris told me that his metaphor research was conducted well before the rise of social media, and these days the major financial networks and sites may be the least of investors' problems. "If you want to be a contrarian thinker, the last thing you want is ignorant people shouting in your ear," he said.
Investing is not for the faint of heart. But unlike markets, every roller coaster must come to an end. Writing for and editing MarketWatch has been one the great thrills of my life. Thanks for reading and riding along with me.