Finance Analogies: Don’t Over-insure Yourself

A finance metaphor illustrating the cost of trying to eliminate all risk from our lives, and presenting an alternative to this: 480 words.

Here’s another go at finding commonality between my former career in finance and my work as a psychologist.

When we purchase insurance we incur a small cost upfront to eliminate the risk of greater losses later on. That all sounds lovely, only insurance companies earn a profit margin on these transactions, ensuring that in the long run they will earn more in insurance premiums than they will pay out to cover people’s losses. In fact, over a lifetime a large majority of us will claim less in insurance than we will pay out in premiums. So why take out insurance at all? Well, one reason would be if there is a plausible risk of a major loss that you could not expect to cover, such as your house burning down. But aside from these situations, the benefits from insurance are mostly psychological – specifically, we gain peace of mind.

But another way to achieve peace of mind in these circumstances is to take a long term view of risk. If we can accept that over a lifetime there is only a very small chance of ever claiming enough on our insurance to justify it, then we could do away with insurance on all but those big ticket items like a house. Sure, we will have a few occasions when we do have to replace an item that we didn’t insure, but the money we save will most probably more than offset this. But many of us struggle to take this long term view. Our emotions are built to focus on more immediate concerns, and if I’m concerned about my new refrigerator breaking down unexpectedly then I’ll buy that extended insurance to allay my concerns. Consequently many of us over-insure our lives.

But this tendency to over-insure doesn’t only apply to financial transactions. We do the same thing if we always carry an umbrella as insurance against it raining, or when we put in unpaid overtime to prepare for almost every possible question at the next work meeting, or when we take a swath of vitamins each day just in case we pick up a particularly virulent flu virus. The cost of carrying that umbrella may be small, but add that up over a lifetime and then compare it to the odd occasion when we’ll get wet, and it’s likely that we could benefit in the long run from leaving the brolly at home.

My examples may seem trivial, but the risk-averse people amongst us insure almost every aspect of their lives, and in doing so, weigh themselves down with the burden of all that insurance. If that is you, then try and take a long term view of the risks in your life, learning to accept the smaller risks that you can deal with should they eventuate, (and you can cope with a lot more than you think). Allow yourself a wry smile when you get caught in the odd rainstorm, but remember that you travel lighter nowadays.

Ways in which emotions malfunction

Various ways in which our emotional systems malfunction are considered: 900 words.

When covering the topic of emotions in my therapy groups I would first ask my participants to contemplate the main functions and benefits of emotions. In What are emotions and what do they do?’ I discussed how according to one model, emotions represent the output from our appraisal of a situation, and create impetus for us to act in ways appropriate to our appraisal. But people don’t generally come to therapy with fully functioning emotional systems, so we would then discuss ways in which emotions can malfunction and cause us trouble. Here are the some of the ways we worked out together…

Short-term gain for long-term pain

Until comparatively recently humans lived pretty much hand to mouth. No wonder then that our emotions often display a short-term bias; that is, they generally provide impetus to act for short-term gain, but don’t always guide use towards better outcomes in the longer term.

For example, I once worked with a small business owner who was afraid of public speaking, and this fear had discouraged her from pitching her business to customers. By avoiding these sales presentations she spared herself the potential for embarrassment, but it eventually cost her the business, and by the time I met her she felt ashamed at letting herself and her family down.

Positive emotions may also promote this short term focus. For example, addictions of all kinds involve short term gratification at the expense of long term physical, mental or financial health.

Emotions are not warranted

Many situations in life are ambiguous, and so can be interpreted in different ways. If we misinterpret a situation then we create a mix of emotions that will provide impetus to some potentially unhelpful responses. I remember when I was travelling in Japan one time I was sitting alone in the breakfast room of a traditional inn, opposite a stern looking Japanese man.  It looked to me as though he might not like foreigners, so my anxiety caused me to stay quiet and carry on eating. Soon though he struck up a conversation, and to cut a long story short we ended up hiking together, and he helped me out finding accommodation on a day I thought everything was booked. If it was left to me and my emotions I would have missed out on all of that, and I realised with hindsight his facial expression might have been nerves at the prospect of speaking in English to me, (or else he might just have had what is known technically as a ‘resting bitch face’ 🙂 ).

Emotions are too strong

Strong emotions can be caused by misinterpreting a situation, as we have considered, but some people just experience emotions more strongly than others. This might result from a genetic predisposition, or from significant life experiences, such as child abuse, and can be experienced during episodes of mental illness, as in the highs and lows of bipolar depression. And of course we may become more emotional when under the influence of drugs like alcohol.

This is clearly unpleasant when those emotions are negative, but will also stimulate a proportionally strong reaction; in other words we overreact. So, perhaps anger is appropriate in a situation, but our aggressive response is over the top and damages relationships. Or we make a mistake and the strength of shame and regret that we feel stops us from moving on and learning from that mistake. Positive emotions are also unhelpful if experienced too strongly: we might feel over-confident and end up taking dangerous risks, including social and financial risks.

Emotions are numbed

Some people regulate their emotions by purposefully or subconsciously suppressing them, and dampened emotional experience can be a side effect of some psychiatric medications. Many clients I’ve worked with suffering from depression say the absence of feeling is one of the worst aspects of this condition.

One of the problems with emotional numbing is that we can’t selectively numb only the negative emotions, so we lose the positives also, disconnecting us from all that life has to offer. And without a significant portion of our emotional ‘metadata’ we have little guidance or impetus, leaving us stranded in the doldrums like a sailing ship with no sails.

Emotions are complex

Complex emotions are sometimes unavoidable, especially in complex situations. One of the functions of the arts, be it music, film, literature, fine arts, or weird contemporary art installations, is to represent this complexity in life, and help guide us through the associated cocktail of emotions without too much of a hangover. It’s possible to feel two or more quite conflicting emotions about the same situation, such as when a parent feels happy-sad about their child leaving home, or a musician feels both anxious and excited about their upcoming performance.  When there’s a lot of ‘noise’ in our heads it’s hard to recognise what distinct emotions we are feeling, and so it’s difficult to know what we can do to resolve them.

Emotions are erratic

Emotions can also be erratic: changing, unpredictable, unstable. It is like living in a city with notoriously unpredictable weather. You would be tempted to just stay at home rather than leave and get caught in a hailstorm, and a lot of my clients said that they never know how they’re going to feel on a particular day, making it hard to commit to anything.

Vicious cycles

When malfunctioning emotions are an isolated occurrence then perhaps nothing too bad will come of it. However, when unhelpful emotions lead to unhelpful responses, these negatively impact on our circumstances, amplifying our negative emotions. And so begins many a vicious cycle leading to mental ill health.

What are emotions and what do they do?

Emotions are conceptualised as the output from a cognitive appraisal process, and provide impetus to act in ways appropriate to how we have appraised our current circumstances: 600 words.

Emotions have a bad reputation, presented variously as irrational, uncontrollable, or unfathomable. But they shouldn’t, and I’d like to repair that reputation in this post.

You may ask why it is necessary to feel anything at all; why for example, can we not just think and act, like the fictional Vulcans from the Star Trek TV series and films. To answer this I’ll first introduce a model taken from the mainstream psychological therapy, Cognitive Behaviour Therapy (CBT), amended slightly to suit my current purposes.

The Cognitive Behavioural Model of Emotions

(In this model our appraisals are a ‘cognitive’ (thought) process, and emotions influence how we ‘behave’ (act), hence the name ‘Cognitive Behavioural Model’.)  

Starting at the top, we first find ourselves in a particular situation, or set of circumstances. We appraise this situation as good, bad or neutral in some way, and this appraisal creates a corresponding emotion, to which we respond with certain actions. By acting we create new circumstances, (or perhaps maintain the current circumstances), and so the cycle continues.

What causes emotions?

The way we appraise a situation, (we could also say assess, evaluate, or interpret), determines the emotion that we feel. So, if we evaluate a situation negatively, for example as threatening in some way, then we will experience a negative emotion, in particular anxiety (or fear). If on the other hand we think a situation holds plenty of promise for the future, then we will feel a positive emotion, in this case excitement. We might also view our circumstances as quite neutral, in which case we will not feel anything in particular.

The function of emotions

We can think of emotions as biochemical reactions in our body that create sensations, or ‘feelings’. We may or may not be consciously aware of the thought processes leading to our emotions, but regardless, our emotions create an impetus to respond, thereby translating our appraisals into actions.

Generally, negative emotions promote actions designed to avoid the situation that led to those emotions. For example, when we feel fear in response to a perceived threat we naturally take evasive action, such as escaping from, or avoiding the threat. Fear is one of the easier emotions to understand: Imagine you are absentmindedly crossing the road and hear a horn beep loudly; your fear stimulates an automatic startle reaction that helps you to quickly see the vehicle and get out of its way.

In contrast, positive emotions tend to stimulate actions which cause us to engage more with the situation which gave rise to those emotions. When excited, for example about an upcoming holiday, we think about it a lot, talk with our friends about it, and plan what we’re going to do so as to make the best of it (or indeed plan to be spontaneous, if that floats our boat more).

So, when our appraisals are sound, the consequent emotions promote actions intended to improve and prevent negative circumstances, or maintain and enhance positive circumstances, at least in the short term. If we have experienced an injustice then we become angry, which provides the impetus to fight this injustice. When we do the wrong thing, we may well feel guilty until we are able to make amends. And when we are satisfied that some danger has passed, our feeling of relief will permit us to lower our guard and relax.

The impetus to respond to emotions in a particular way may be difficult to resist, and we should have a good reason to try to do so. Nevertheless, I wouldn’t have a job if our emotions didn’t sometimes go a bit haywire, and I’ll discuss these circumstances in my next post.