Stress and IQ Reduction
Aviation is an area of study where survival is concerned. Author and scholar Laurence Gonzales, who spent his whole life seeking risk and thinking and writing about survival, starts his praiseworthy book on the subject by telling the story of his father who, at the end of World War II, was shot down when piloting a B-17 over Dusseldorf. Somehow, his father survived the crash from twenty-seven thousand feet, while all other crew members did not. Heavily injured, he watched a local peasant walk up to the window, point a pistol at his head, and pull the trigger. Fortunately, the gun malfunctioned. What are the chances? As Aristotle might have said on the occasion:
Part of probability is that the improbable can occur.[i]
—Aristotle (384–322 bc), Greek philosopher
In aviation, one often hears flight instructors say that once airborne, a pilot’s IQ is halved. The logic of this notion is that the human brain, from an evolutionary perspective, is not “designed” (poor choice of words, I know) to deal with some of the modern-day vagaries. To put it differently, the time for the species—in this case, us—was too short to adapt to the new environment (i.e., modernity). In hang gliding, for example, one needs to land in the wind. If the pilot lands with the wind, i.e., the wind coming from the rear instead of the front, the glider's speed is added to the wind instead of subtracted, which nearly always results in an unpleasant and embarrassing experience. Oscar Wilde’s wit captures hang gliding landing accidents well:
Experience is the name that everyone gives to their mistakes.[ii]
—Oscar Wilde (1854–1900), Irish author
Wind direction is normally marked by a windsock in the landing zone. The windsock points in the opposite direction from where the wind comes. The pilot needs to fly a rectangle over the landing zone where the actual landing happens into the wind. The speed of the glider is thus reduced by the wind. Given that the pilot needs to deal with three dimensions (for which evolution did not have enough time to prepare the human brain yet) and needs to focus on the landing procedure, it can happen that the pilot sometimes misinterprets the direction of the windsock and lands with the wind instead of into the wind.
Interpreting from where the wind comes by observing a windsock under normal circumstances is trivial. However, under the stress of landing, the obvious can become fuzzy—hence the aphorism of the pilot not having his full IQ at his disposal. I was a hobby hang-gliding pilot in my early twenties. Suffice it to say I learned the above the hard way:
If you hold a cat by the tail, you learn things that cannot be learned in any other way.[iii]
—Mark Twain (1835–1910), American author
Or, as the author of the all-time classic A Random Walk Down Wall Street put it in relation to investing in the stock market:
Some things in life can never fully be appreciated or understood by a virgin.[iv]
—Burton G. Malkiel (b. 1932), American economist
Emotions and Moods
Under stress, mammalian emotions and savannah instincts take over. Stress releases cortisol into the blood. It invades the hippocampus and interferes with its work. Stress causes most people to focus narrowly on the thing that they consider most important, and it may be the wrong thing. Under extreme stress, the visual field narrows. This reaction is referred to as tunnel vision.
Laurence Gonzales, in Deep Survival, states that it has happened numerous times that airline pilots were ordered to abort the landing and simply did not hear the warning from the tower or did not see the snowplough in the middle of the runway. Tunnel vision is one of the reasons why commercial airlines have a copilot.
Under stress, emotion takes over from the thinking part of the brain, the neocortex, to affect an instinctive set of responses necessary for survival. This has been referred to as the “hostile takeover of consciousness by emotion.”[v] The young chronicler of humankind’s brief history, the author of Sapiens, brings it to the point well:
If the feelings of some ancient ancestor made a mistake, the genes shaping these feelings did not pass on to the next generation. Feelings are thus not the opposite of rationality—they embody evolutionary rationality.[vi]
—Yuval Noah Harari (b. 1976), Israeli historian and author
Emotions are genetic survival mechanisms, but they do not always work for the benefit of the individual. They work across many trials to keep the species alive. The individual may live or die, but over a few million years, more mammals lived than died by letting emotion take over, and so emotion was selected as a stress response for survival. If I had to summarize Morgan Housel’s book The Psychology of Money in a single word, it would be “survival.”
If I had to summarize money success in a single word it would be “survival.” [vii]
—Morgan Housel (b. 1983), American columnist and author
Frank Lowy, who survived the ghetto in Hungary during World War II and a British detention camp in Cyprus when picked up en route, heading for Palestine, knew what he was talking about:
The human being is very resourceful. When you fight for survival, you don’t think much; you just do. If you think too much, you sink.[viii]
—Frank Lowy (b. 1930), Czechoslovak-born Australian Israeli stuntman and businessman
There is a vast amount of empirical financial research pointing out that unprofessional investors have far poorer performance than professional investors. The key reason is emotions. Professional investors are often aware of the behavioural phenomena of being overconfident and, thereby, can adjust their behaviour accordingly. The biggest mistake by nonprofessional investors is cutting profits short and not taking losses early:
The majority of unskilled investors stubbornly hold onto their losses when the losses are small and reasonable. They could get out cheaply, but being emotionally involved and human, they keep waiting and hoping until their loss gets much bigger and costs them dearly.[ix]
—William O’Neil (b. 1933), American investor
Moods are contagious, and the emotional states involved with smiling, humour, and laughter are among the most contagious of all. Laughter does not take conscious thought. Laughter stimulates the left prefrontal cortex, an area in the brain that helps us to feel good and to be motivated. There is evidence that laughter can send chemical signals to actively inhibit the firing of nerves in parts of the brain, thereby dampening fear. Investors ordinarily do not share a laugh when their portfolios start the year with a 20 per cent loss. They should. Having a good laugh is a survival technique, at least according to business management book writer Tom Peters, who has been in the business of searching for excellence for a long while.
In order to survive in these wild times, you’re going to make a total fool of yourself with incredible regularity. If you can’t laugh about it, then you are doomed.[x]
—Tom Peters (b. 1942), American business writer
Fear and Coolness
Only in recent years has neuroscience begun to understand the detailed physiology of emotional states, such as fear. The neocortex is responsible for your IQ, your conscious decisions, and your analytical abilities. But the amygdala stands as sort of a watchdog for the organism.[xi] It is not a lack of fear that separates elite performers from the rest of us. They are afraid, too, but are not consumed by it. They manage fear. They use it to focus on taking the correct action. Fear is both good and bad:
Fear is your best friend or your worst enemy. It’s like fire. If you can control it, it can cook for you, it can heat your house. If you can’t control it, it will burn everything around you and destroy you. If you can control your fear, it makes you more alert, like a deer coming across the lawn.[xii]
—Mike Tyson (b. 1966), American boxer
Leonardo da Vinci said pretty much the same thing. Fear is one of nature’s risk management devices:
Just as courage imperils life, fear protects it.[xiii]
—Leonardo da Vinci (1452–1519), Italian polymath
Fear is universal and unavoidable, as General “Bandito” Patton might have said at this point:
If we take the generally accepted definition of bravery as a quality that knows no fear, I have never seen a brave man. All men are frightened. The more intelligent they are, the more they are frightened.[xiv]
—George S. Patton (1885–1945), American general
Translating this into finance, a person might be too risk-averse and, therefore, somewhat unqualified to take the necessary risks that are a prerequisite for returns. As Warren Buffett put it, one need not be a genius to do well in finance:
Successful investing requires a quality of temperament, not a high IQ. You need an IQ of 125 tops…and you must be able to think for yourself.[xv]
—Warren Buffett (b. 1930), chairman, CEO, and largest shareholder of Berkshire Hathaway
One of the lessons Gonzales suggests from studying survival in aviation and extreme sports is to remain calm under stress (i.e., not to panic). Not panicking is easier said than done. Because emotions are called “hot cognitions,” not panicking is known as “being cool.”
Bertrand Russell, who was an active pacifist during World War I and was dismissed from his lecturer job at Trinity College, Cambridge, due to his beliefs on the relationship between knowledge and emotions:
The degree of one’s emotions varies inversely with one’s knowledge of the facts—the less you know, the hotter you get.[xvi]
—Bertrand Russell (1872–1970), British philosopher
“Cool” as a slang expression dates back to the 1800s, but its contemporary sense originated with African American jazz musicians in the 1940s. Jazz was “cool” compared with the hot, emotional bebop it had begun to overshadow. “Being cool” means to remain calm, to channel emotions, and to be able to turn fear into focus.
Bottom line
Failure can be good because there is learning. Survival, and therefore risk management, is key. Otherwise, there is just death rather than learning.
Fear of failure can also be a good thing too. Mike Tyson and Leonardo da Vinci thought so. The key is to remain cool. Or: "Don't Panic," as it was written in large friendly letters on the cover of one guide.
[i] Aristotle, Poetics (c. 335 bc).
[ii] Oscar Wilde, Lady Windermere’s Fan, Mr. Dumby, Act III (n.p., 1892).
[iii] I herein use a popular variant. Original is from Tom Sawyer Abroad (1894) and reads: “…the person that had took a bull by the tail once had learnt sixty or seventy times as much as a person that hadn’t, and said a person that started in to carry a cat home by the tail was getting knowledge that was always going to be useful to him, and warn’t ever going to grow dim or doubtful.”
[iv] Burton G. Malkiel, A Random Walk Down Wall Street (New York: W. W. Norton, 1990), 25. First published in 1973 by Irish Booksellers (Portland).
[v] Laurence Gonzales, Deep Survival: Who Lives, Who Dies, and Why (New York: W. W. Norton, 2003), 37.
[vi] Yuval Noah Harari, 21 Lessons for the 21st Century (London: Jonathan Cape, 2018), 47.
[vii] Morgan Housel, The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness (Petersfield, England: Harriman House, 2020) 59.
[viii] Jennifer Hewitt, “Holocaust Truth Set Frank Lowy Free,” The Australian, November 13, 2010.
[ix] Jack Schwager, Market Wizards: Interviews with Top Traders (New York: CollinsBusiness, 1993). First published in 1989 by the New York Institute of Finance.
[x] Tom Peters, “Sound Off: Tell Us What You Think,” Fast Company, February 28, 2001.
[xi] From Laurence Gonzales, Deep Survival: Who Lives, Who Dies, and Why (New York: W. W. Norton, 2003), 64.
[xii] As quoted in Paul Beatty, Hokum: An Anthology of African-American Humor (New York: Bloomsbury, 2006), 101.
[xiii] The Notebooks of Leonardo da Vinci, trans. Jean Paul Richter. New York: Scribner and Welford, 1880.
[xiv] As quoted in Robert S. Allen, Drive to Victory (New York: Berkley, 1947), 27. Originally published as Lucky Forward, vol. 3, part 4.
[xv] Berkshire Hathaway, Annual Report, 2005.
[xvi] As quoted in Joseph Wilmer Thompson, Selling: A Behavioral Science Approach (New York: McGraw Hill, 1966), 197.