Metaphors We Invest By

Lost for Words

Metaphor is a powerful engine for driving thought. Or possibly it's a useful compass for guiding it. Or perhaps it's some other metaphor. The point is the we tend to think in metaphors, even about metaphor, and it seems that the metaphors we use to describe a situation  determine how we view it and what we do about it.

So companies may be in a tail-spin, or simply marking time. Or perhaps they're in terminal decline, or maybe it's merely a temporary setback. And maybe we're talking about the same thing, and how you hear it described determines your reactions to it … metaphor is powerful, acts on us unconsciously and is almost completely useless to an intelligent investor.

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Investors, You’ve Been Framed

Lakoff's Political Frames

Suddenly politicians are all excited about a psychological trick that’s been known about for years. This is in no small part due to George Lakoff who’s popularised the idea of ‘framing’ in political circles. In the simple terms that politicians will understand, framing is about using the right loaded phrases and words to position yourself.

So, for instance, the American Army engaged in a ‘surge’ in Iraq: a short-term, rapid build up and assault is what comes to mind, rather than a long-term commitment. Or consider the renaming of the aggressive British Ministry of War to the protective Ministry of Defence. Or the various euphemisms for firing people: “sorry we have to let you go”. Such phrases create frames and these cause underlying behavioural biases to trigger in certain ways. As usual with psychological tricks the effect of this on individuals’ investing habits is largely bad.

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