Are we talking about a recession?
Are we talking about a recession?
IMF warns of ‘serious decline’.
Britain is already in recession
Prime Minister convenes meeting with finance chiefs after banking nightmare
Europe in disarray because of the crisis
Britain will be the biggest victim of the global crisis, says the IMF
The recession is here, bosses say
Thousands of small businesses face collapse
Check out these headlines, all pulled from reputable news websites on October 8, 2008. If you’re like most people, you’re probably reacting with an ever-growing sense of doom and gloom in the pit of your stomach. But let’s stop for a minute and look around. Is everything really as bad as we think?
Now, before you read on, I’m not an economist and I don’t claim to know the answer. However, as a business psychologist, I would like to discuss the psychological impact of the current media hype surrounding the credit crunch. Peter Jones, successful entrepreneur and “Dragon”, recently appeared on the BBC’s Breakfast program and was quoted as saying: “We’re not in a recession; this is nonsense; we are not far from entering a recession; let us stop the doom and gloom; we’re going to bring down the economy by talking about this recession.” Is this true; are we being pushed into a recession or are we talking ourselves into one?
In general, people tend to be bombarded with information from all angles. As a result, we often find ourselves in situations where there are more demands on our resources than we have available resources. This is known as information overload. To help make the most efficient use of our limited cognitive abilities, we’ve developed a number of strategies for dealing with information overload—one of which is known as “heuristics,” or simple rules for making complex inferences or making difficult decisions quickly.
One such heuristic in the “availability heuristic”. According to this type of heuristic, the easier it is to recall instances of an event, the more common or important the event is. By using such a rule, we reduce the cognitive effort required to reach conclusions in a rapidly changing environment, but it also leaves us open to erroneous conclusions.
The wrong conclusions drawn from using this tactic leave us subject to what is called “priming.” For example, first-year medical students are prone to a condition called “medical student syndrome.” It seems that as a result of being bombarded with information about illnesses and ailments, students tend to misinterpret a simple sore throat as something far more catastrophic. The same logic can be applied to the current economic situation and can lead to a vicious cycle that leads us into a real recession.
Consider a fictional face. The media is exaggerating the current situation for sensational appeal; this is further supported by gossip, hearsay and speculation; the media dramatically increases its coverage of the apparent “recession” and the individual is bombarded with information. To cope with this information overload, through availability heuristics and priming, the individual draws erroneous conclusions about the seriousness of the situation. The individual stops borrowing and spending.
Now multiply that behavior by every person in the country. People stop spending and borrowing; the economy is faltering. The media again replays the situation for a sensational appeal and the whole cycle starts over. End result – recession. But in this example, it wasn’t the economy that led to our recession, but our reaction to inaccurate conclusions drawn through flawed decision-making processes.
With such conflicting messages in the media right now, it’s no surprise that people are feeling overwhelmed. In such a situation, we must be careful not to exaggerate the weight of truth from the available information and leave us in a situation where the tail wags the dog.
Ask yourself, if there is no real recession right now, are we in danger of talking ourselves into one?