One of the things that make humans human is the tendency to seek out patterns. In fact, we often spot coincidences and call them patterns when none in fact exist.
Our pursuit of patterns can lead us to define the recent past as the "new normal," a definition that can vary greatly based on personal circumstance.
When we get focused on the new normal, we forget to think about the possibility of surprises. After all, our brains naturally want to cut through the complexity and settle into a routine.
But the reality is that surprises will happen no matter how we define normal because life has no set or guaranteed pattern. Surprises interrupt our definition of the new normal and cause us to reset our expectations.
If history tells us they will happen, though, why are we so surprised by the surprises?
There are at least two reasons:
- The origin of the next surprise often looks different than the last one.
- The longer and more pronounced a new normal seems, the less it takes to surprise us.
Nassim Taleb illustrates this problem with the story of a turkey. For every day of a turkey's life, he's fed on a regular basis and comes to expect that his daily pattern of being fed is a general rule. Imagine this turkey's surprise on the Wednesday before Thanksgiving when this pattern changes.
The turkey had no reason to think the pattern would change. Yet it did just that with no warning, and with serious consequences for the turkey.
Clearly, you don't want to be a turkey.
Granted, we're often asked to make decisions, particularly financial ones, based on a degree of uncertainty. To counter this uncertainty, we commit one of the classic behavioral mistakes by looking to the recent past, identifying a pattern and projecting it into the future. The danger of this behavior is that we're making decisions based on the new normal and often fail to include the potential for surprise.
As you make plans, it's worth evaluating your current normal. How are you spending your money? How much are you saving? How are you investing? Maybe you don't need to make any changes, but it's worth considering whether you have a backup plan for the next surprise.
Because it will come, after all. We just have no idea what it will look like.
A version of this post appeared previously at The New York Times.
Carl Richards is a financial planner and the director of investor education for the BAM ALLIANCE, a community of more than 130 independent wealth management firms throughout the United States. Visit Behavior Gap for more of Carl's sketches and writings.
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