Investing isn’t just a numbers game; it’s deeply tied to our psychology. Whether you’re contemplating investing in something new or struggling to let go of an investment you’ve held for years, understanding the underlying psychological factors can offer valuable insights. As therapists who specialise in both Cognitive Behavioural Therapy (CBT) and psychodynamic psychotherapy, we see parallels between emotional decision-making in investing and the patterns we explore in therapy.
At the Online Therapy Clinic, we (Dr Ruxandra Ion and I, Ari Sotiriou) often work with clients facing difficult decisions or periods of uncertainty. These can manifest in various areas of life, including financial choices. But why is it so hard to move on from familiar investments, even when they no longer serve us, and what drives us to take risks with something new?
Loss Aversion: The Fear of Letting Go
One of the key psychological concepts that can explain this is loss aversion. This refers to the tendency to feel the pain of loss more intensely than the pleasure of gain. Investors might be reluctant to sell long-held assets, even when they’ve been underperforming, because the idea of realising a loss feels too painful. This is where CBT can be particularly helpful. CBT looks at how our thoughts and feelings influence our behaviours. By identifying the negative automatic thoughts driving the fear of loss, therapy can help clients reframe these and approach decision-making with more clarity and less emotional attachment.
Status Quo Bias: The Comfort of Familiarity
We are naturally inclined to stick with what we know. This is known as status quo bias, and it’s a powerful force when it comes to investments. We often hold on to familiar assets simply because they feel safer. But this tendency to favour the status quo can sometimes blind us to new opportunities. In psychodynamic psychotherapy, we explore the deeper emotional layers behind these attachments. Are there past experiences shaping our aversion to change? Do we associate familiar investments with feelings of security or identity? By unpicking these unconscious motivations, clients can gain insight into their decision-making processes and begin to break free from patterns that no longer serve them.
Overconfidence and New Investments
On the flip side, there’s the issue of overconfidence. Investors might feel overly assured in their ability to pick the ‘next big thing’ and dive into new opportunities without adequate research. While confidence is essential, it’s important to recognise when it crosses into overconfidence, leading to impulsive decisions. In CBT, we might explore the beliefs driving this behaviour and challenge them, helping clients to find a balanced perspective.
Fear of Missing Out (FOMO)
In today’s social media-driven world, FOMO is another significant factor. When we see others profiting from new investments, it’s easy to feel left behind and compelled to take action. This emotional response often leads to rash decisions. At the Online Therapy Clinic, we work with clients to identify when FOMO is influencing their decisions, using CBT techniques to help them pause and assess whether their choices are truly aligned with their goals.
The Endowment Effect and Emotional Attachment
The endowment effect is another concept that can explain why people are reluctant to sell their familiar investments. We tend to place higher value on something simply because we own it. This emotional attachment can cloud our judgement. Psychodynamic therapy helps us explore the roots of this attachment. What does the investment represent on an emotional level? For some, it may be tied to a sense of achievement, while for others, it might symbolise stability or success. Understanding these deeper meanings can help clients make more rational decisions.
Cognitive Dissonance: When Beliefs and Choices Conflict
Finally, there’s cognitive dissonance, which occurs when a new opportunity conflicts with our long-held beliefs or attachments. This internal tension can make it difficult to embrace new investments, even when they make logical sense. In therapy, we can work through this discomfort by exploring both the emotional and rational aspects of the decision. Psychodynamic psychotherapy is particularly effective in helping clients understand the unconscious beliefs driving this conflict, while CBT can provide practical tools to manage the discomfort and make decisions with greater confidence.
Therapy Can Help You Understand Your Decision-Making
At the Online Therapy Clinic, we (Dr Ruxandra Ion and I, Ari Sotiriou) offer CBT and psychodynamic psychotherapy to help clients better understand their motivations and decision-making processes. Whether you’re facing financial decisions or personal challenges, therapy can provide the insight and tools to help you move forward. We work in English, French, and Greek to accommodate diverse needs, and we welcome individuals and couples looking for guidance.
Visit https://online-therapy-clinic.com for more information about our services, and to learn more about us, visit our About page. Making informed decisions, whether in investing or other areas of life, begins with understanding ourselves.
By Ari Sotiriou M.A. psychodynamic psychotherapist co-founder Online Therapy Clinic