Are we making each other sick?

Managing our work life and finances are hard enough without those around us spreading contagious rumors, worries and fears, right? Who doesn’t face daily exposure to individuals spreading toxins throughout our organization or neighborhood? And how does our own behavior change when we are faced with negative or fear-based attitudes? How do worry, rumor and fear impact the decisions we make?

There is considerable evidence that social interactions drive not only human behavior, but market behavior as well. The notions of social and market contagion were originally conceived in the in the 1920’s by examining epidemics and how they spread. Thus, just as infectious diseases can spread across communities, so can infectious ideas, worries and fears.

Epidemiologists studying the pattern of disease (Bailey, 1975) and social psychologists studying the impact of rumors and fads (Bartholomew, 1982) found that the volatile nature of financial markets and the vulnerability of human decision making create an opportunity for interpersonal communication among peers to become a key factor in our marketplace, workplace and in our lives.

Schiller (1989) sought to examine investor behavior in the October 1987 stock market crash. Utilizing open-ended surveys to determine exactly what happened on October 19, 1987 that was different from any other day, Schiller found that investor fear and anxiety, drawn from the memory of the stock market crash of 1929, impacted investor behavior in 1987. When questioned about how they made investment decisions on October 19, most respondents relied on a “gut feeling” rather than technical analysis.

Pound and Shiller (1989) continued this research to determine how social processes impact investment decisions. In their seminal paper, questionnaire surveys were used to learn about patterns of communications among individual and institutional investors. They found that interpersonal communications were a very important factor in investor decisions and that word of mouth communications impacted interest in individual stocks.

Kelly and O’Grada (1996) tested a model of market contagion where individuals hear bad news and communicate it within their community. They specifically examined information networks and their impact on market performance. Two market panics (1854 and 1857) were used to determine the impact of human communication and information networks on the sustainability and health in a New York bank. Clientele in this bank were largely recent immigrants from Ireland. Using immigration and bank records, as well as grids of New York City, researchers were able to track bank activity (deposits and withdrawals) on an hourly and daily basis. This research revealed that the Irish community from which the client immigrated and the subsequent community in which they resided in New York City determined their banking behavior during these two panics. Researchers coined the clients “stayers” and “goers” and were able to plot their banking activity onto the city grid.

Kelly and O’Grada’s study is fascinating because they were able to track individuals and their daily banking behavior during these panics and demonstrate the impact of personal acquaintance in encouraging panics. They state “during the 1854 run, for instance, we find that John Hayes and John Lane (originating from Cork, Ireland) and Thomas Murray and Michael Corcoran (from Roscommon, Ireland) all laborers living at 26 Cherry Street, showed up at the bank on September 14 and closed their accounts (p. 1117)”. One can imagine the conversations that took place during the days and hours preceding their bank withdrawals and the level of influence these men had on each other.

So what can we make of the social nature of human beings and the influence we have over one another’s minds and how this influence impacts our work life, our personal finances and ultimately our economy?

My first suggestion would be to question the source of information. A powerful supply of information are the people in closest proximity to our work area. Ironically, most of us learned in junior high school not to trust the ideas of the disgruntled teenager we happened to sit next to in math class, but when it comes to the workplace, we tend to give much more credit to the ideas of those around us than they might deserve. Thus, the required skill becomes sifting through all the ideas, thoughts, agendas, and worries that others bring to us. What might drive their fears, worries and need to spread rumor? What might be their agenda? Which notions are valid and which might be best to ignore?

The next most power source of information for most of us is the news media. Newspapers, blogs, websites, television news, etc… all drive our worries and behaviors. Again, we must consider what drives the news media. What does the media industry gain by grabbing our attention? How do we sift through the hype and get to information that effectively informs decisions? We also need to think about how much information is too much information. In his “Ten Simple Steps to a Better Life”, Dr. Andrew Weil, alternative medicine guru, suggests taking periodic “news fasts” to gauge the impact negative news has on our daily mindset. (http://www.drweil.com/drw/u/ART02034/simple-steps-to-a-better-life.html).

We can never eliminate the impact of social or market contagion on our thinking regarding our lives or financial decisions, but we can take one more step before we assume that all the information we hear is true. We can question the value of that information and the motivations behind it. We can become conscious of information in a new way, and learn to protect ourselves from the contagious disease of rumor, fear and anxiety.