Why does Pessimism sound so smart (esp when things are so good)

March 24, 2016

By Tom Gardner (CEO and Founder of The Motley Fool) and Morgan Housel

real gdp per person

“For reasons I have never understood, people like to hear that the world is going to hell,” historian Deirdre N. McCloskey told the New York Times this week.

It’s hard to argue.

Despite the record of things getting better for most people most of the time, pessimism isn’t just more common than optimism, it also sounds smarter. The pessimist is intellectually captivating, garnering far more attention than the optimist, who is often viewed as a naive sucker.

It’s always been this way. John Stuart Mill wrote 150 years ago: “I have observed that not the man who hopes when others despair, but the man who despairs when others hope, is admired by a large class of persons as a sage.” Matt Ridley wrote in his book The Rational Optimist:

If you say the world has been getting better you may get away with being called naïve and insensitive. If you say the world is going to go on getting better, you are considered embarrassingly mad. If, on the other hand, you say catastrophe is imminent, you may expect a McArthur genius award or even the Nobel Peace Prize.

In investing, a bull sounds like a reckless cheerleader, while a bear sounds like a sharp mind who has dug past the headlines – despite the record of the S&P 500 rising 18,000-fold over the last century. Yes, 18,000 times over! Wharton Professor Jeremy Siegel is often chided as a perma-stock-bull, blindly cheering for a higher market every time he goes on TV. But he’s done it since the early 1980s, a period in which the market increased in value 40 times over.

And so, we delight in movies like The Big Short and carp about the collapse of Enron. And that’s great. They’re extremely instructive. But we make a mistake by over-emphasizing them. . . rather than obsessing over medical breakthroughs, the enduring success of companies like Starbucks or Amazon.com, the exciting prospects for self-driving cars, et cetera.

This problem goes beyond investing.

Harvard professor Teresa Amabile shows that those publishing negative book reviews are seen as smarter and more competent than those giving positive reviews of the same book. “Only pessimism sounds profound. Optimism sounds superficial,” she wrote.


There’s clearly more at stake with pessimism. Daniel Kahneman won the Nobel Prize for showing that people respond more strongly to loss than gain. It’s an evolutionary shield: “Organisms that treat threats as more urgent than opportunities have a better chance to survive and reproduce,” Kahneman once wrote.

Here are two other reasons that pessimism gets so much attention.

  1. Optimism appears oblivious to risks, so by default pessimism looks more intelligent. But that’s a wrong way to view optimists. Most optimists will tell you things will get ugly, that we will have recessions, bear markets, wars, panics, and pandemics. But they remain optimistic because they know that, like the universe, healthy markets grow. To the pessimist a bad event is the end of the story. To the optimist it’s a slow chapter in an otherwise excellent book.
  2. Pessimism requires action, whereas optimism means staying the course. Pessimism is “SELL, GET OUT, RUN,” which grabs your attention because it’s an action you need to take right now. Optimism is mostly, “Don’t worry, stay the course, we’ll be alright,” which is easy to ignore since it doesn’t require doing anything. Remember, it is enduring optimism that has earned a return of 18,000X over the last century. The opposite approach has failed, terribly.

Should you ever listen to pessimists? Of course. They’re the best indication of what’s unsustainable, and thus the catalyst for what must change. They lay down the breadcrumbs on pathways for entrepreneurs to run their innovative minds (think, Elon Musk and Tesla).

For long-term investors, though, an optimistic view that humanity will profitably solve the world’s greatest problems is the right frame of mind

Our Irrational Fear of Terrorism

fear of terrorismTerrorism: noun

  1. the use of violence and intimidation in the pursuit of political aims.

Based on the amount of time politicians and the media spend talking about terrorism, you would think that this is the top threat facing America’s existence.  And all of this talk is having an impact:  in a recent Gallup poll, 51 percent of respondents said they’re personally worried about becoming a victim.   In the last year, I  have met people who are afraid to fly or even leave their communities because they believe they will be harmed in some way by a terrorist.

Fear is an emotion and somewhat irrational.  Psychologists tell us that our fears are exaggerated when we don’t know the probability of an outcome.  So in an effort to calm everyone down, let me at least give this a try with some facts and statistics:

Since 2002,  approximately 200 people have been killed by terrorists on US soil – an average of 14 per year.    That’s 14 people out of 320 million – or 0.0000044% of the population per year.

Let’s compare that to the likelihood of dying in the USA from other causes:

  • 30 people per year die from lightning strikes – so you are 2x more likely to be killed by lightning than to be killed by a terrorist.
  • 150 people per year are killed by deer (usually from a deer hitting your car) – so you are 11x more likely to be killed by a deer than to be killed by a terrorist
  • 400 people per year die of drowning in their bathtub – so you are 28x more likely to die in your own tub than to be killed by a terrorist
  • 1,000 people per year die in train accidents – so you are 71x more likely to be killed by a train than to be killed by a terrorist
  • 10,000 people per year die by being shot to death – so you are 714x more likely to be shot to death by someone in your neighborhood than to be killed by a terrorist
  • 30,000 people per year die in car accidents – so you are 2,143x more likely to die while driving than to be killed by a terrorist
  • 35,000 people per year commit suicide – so you are 2,500x more likely to kill yourself than you are to be killed by a terrorist
  • 80,000 people per year die from drinking too much alcohol – so you are 5,714x more likely to drink yourself to death than you are to be killed by a terrorist
  • 90,000 people per year die of Alzheimer’s, 145,000 people per year die of respiratory disease,  and 600,000 people per year die of heart disease – so you are 6,428x; 10,357x and 42,857x more likely to die from those causes than from terrorist attacks.

AND, in case you are worried about being killed by a terrorist while you are not in the USA, it turns out that the leading cause of deaths for Americans traveling abroad is not terrorism, or murder … or even crime of any type.  It’s car crashes.  The U.S. Department of State reports that  47 U.S. citizens were killed worldwide as a result of terrorism in 2011. That figure includes deaths in Afghanistan, Iraq and all other theaters of war.

Regardless of these facts, we apparently are more concerned about being killed by terrorists than all of those other causes of death put together.   But  apparently we find that taking a bath, riding a train, owning a gun, driving a car or drinking alcohol is a convenience we value more than the 112,400 people who die from these activities.  Last time I checked, there was no nation-wide war on taking a bath because 400 people per year die while doing it.

Look, I’m not saying that terrorism isn’t a threat.  It is. But we are over-reacting to the degree to which the terrorists threaten our lives or existence as a country.  This fear is being perpetuated by the media and by politicians who are exaggerating the impact of every terrorist event in the world for their own self-interest (politicians because they want to replace the current government and media who love the ratings).  The fact is that actual terrorist activity in America, while real,  is relatively minor compared to the other things that threaten our lives and our society.   We don’t panic when there’s a multi-car or train accident, a mass murder by street gangs, or bikers or drug dealers or even when we read that death by Alzheimer’s will become even more deadly that it already is.  So why panic now?  Even if terrorist activity doubles next year, you are still more likely to be killed by lightning.

So let’s put this into perspective:  Terrorist activity is a threat and it is a crime and we should take it seriously.  We must continue to fight this crime with the same approach we used when  new medical diseases – like Polio, Malaria, AIDs, or Ebola – threatened our society.  In each of these instances, a calm and rational approach was successful in overcoming the threat. It took some time but ultimately we won the battle.   We did not win by creating irrational fear in the hearts and minds of our citizens.  The same is true with terrorism.  Let’s keep it in perspective.