by Andrew Flake
I always appreciate a good book recommendation, and received one the other week in The Psychology of Money: Timeless lessons on wealth, greed, and happiness. In a compact format, author Morgan Housel, a Wall Street Journal columnist, looks at some of the ways that we all relate to money, sharing the insight that what drives these decisions are, more often than the pure rationalism of the economist, the more fluid principles of the psychologist.
In considering the book’s insights, neatly packaged in twenty short and very readable chapters, I was, of course, also thinking of what they might reveal about business mediation, itself very often bound up with money. As it turns out, beyond the level of money-related thinking, there were a number of other insights, grounded in human nature, that mapped over pretty well. Here are three I found the most useful.
The Role of Personal Experience. While individual goals, and the features of individual investments like rate of return and risk, should be the main drivers of investment, they are not. Instead, economic research tells us that “people’s lifetime investment decisions are heavily anchored to the experiences these investors had in their own generation–especially experiences early in their adult life.” Correspondingly, when we mediate, there is much more at play than just a rational-legal analysis: Few litigants are able, or should be expected, to approach a dispute from a purely academic or rational perspective, at least before some substantial processing and work — and even then, their own life experience up to that point is going to inform how they value the case, and what kind of settlement is achievable. So it is important that the parties have an opportunity to share their stories, to communicate the importance of the individual dispute to them, not only as part of advancing a position and being heard, but so that the mediator can understand just why the parties’ priorities are what they are.
Avoiding the Easy Assumptions. People like stories, and our popular lore is replete with ones about money and success. We celebrate the myth of the brilliant entrepreneur, for example, whose drive and insight change the world in a visionary way, creating fortunes of untold magnitude. But beneath these mythical retellings, there is often a much more complicated reality–including the unpredictable role of factors like simple luck. One fascinating example is Bill Gates, who, as driven a business leader as he was, also found himself as a teen with socio-economic advantages. He lived in a part of the world, the country, and even Seattle that presented an incredibly rare convergence of opportunities to learn programming and personal computing, opportunities that would have been unavailable to a Bill Gates born in Mumbai or on the South Side of Chicago. A Cornelius Vanderbilt, or John Rockefeller, living in a more regulated economy and facing more aggressive legal scrutiny, may not have had the monopolistic momentum that built their own fortunes.
In all of these and many other cases, there is much more to their success and personal histories than the high-level stories we impose, and thus more, and more accurate, lessons to learn. As neutrals, we similarly have to avoid easy and quick judgments, eschewing what may seem to be an obvious pattern or story, listening keenly and digging deeply, until we really understand the dispute in front of us.
The role of “appealing fictions.” Investors often need to believe that certain things are true, about their investments or the economy, and the more they want to believe these facts, the more they latch on to stories that support them. This phenomenon occurs especially in situations where the actors are “smart… want to find solutions, but face a combination of limited control and high stakes.” Does that profile sound at all familiar? In litigation, with a similar mix of conditions, counsel can become so invested in proving and prevailing on a particular set of facts or legal position, that other more feasible and beneficial outcomes get overlooked. And just as with investing, the stronger they need to believe in a position, the more likely they are to accept and advance a story that incorporates it, and even to overlook negative facts and fill in factual gaps in a supportive way. Through a well-structured mediation, through questions that explore and test, through looking to objective resources and facts, and through creative thinking and the other tools in her pocket, the mediator can bring the parties and counsel back down to earth, hopefully landing on the solid ground of a mutually beneficial settlement.
There are some additional insights I want to share from “The Psychology of Money,” which I’ll save for a subsequent post. In the meantime, if you’ve seen some of these dynamics play out, send me an e-mail and let me know. I’d love to hear your own experience with them.
Lastly, a hat-tip and thank you to my friend Lisa Brown, a truly exceptional financial planner and advisor, for this book pick!