Things aren't always fair, but reacting to life's vicissitudes emotionally can be a recipe for unhappiness.
I never understood the concept of road rage. As you drive to your destination at a normal speed, you get cut off. You then speed up to get ahead of the person so that you can slow down in front of him. This is really stupid at many levels: First, you endanger yourself by trying to teach someone a lesson. Second, the perpetrator's act causes you a moment of inconvenience for which you are willing to spend hours stewing. Third, anyone who catches you in the act most certainly thinks less of you. And fourth, it takes you longer to get where you are going.
But after reading "Animal Spirits -- How Human Psychology Drives the Economy, and Why it Matters for Global Capitalism" by George Akerlof (a Nobel prize winner) and Robert J. Schiller, road rage made some terribly twisted sense to me. Someone cutting you off violates your innate sense of fairness. In driving, you try to square the deal. Akerlof and Schiller point out that in economics, "considerations of fairness can override rational economic motivation."
The problem? We often disagree about what is fair. The pundits are constantly sparring over fairness issues regarding income tax, executive compensation or how to spend stimulus money.
Beware of emotions
I have seen people make life-changing decisions because they felt they were being treated unfairly. While road rage is (usually) temporary, some client outcomes have lasted far longer. I know someone who left an otherwise-loved job after finding out that a co-worker earned more. Wage differences aren't always due to performance. Sometimes the issue is simply that starting wages are higher for new workers than the cost-of-living increases for longer-term employees. While it may not be fair, need it be a reason to quit a good job?
We hear about people leaving Minnesota to move to a lower-taxed state, often abandoning community, family and a quality of life that they have come to enjoy. For some, the savings are significant, but for others, they are leaving because they don't think it's fair that they bear such a heavy tax load. Again, even if it isn't fair, is it really worth it?
Those questions are not rhetorical. If you are keeping score in your daily life, you are going to be unhappy. Things often even out in ways that you never would have anticipated. We have had clients who spent several years of their lives caring for an ailing partner. It's not fair that one partner was ill, and it's certainly not fair that the healthy partner's life got turned upside down. But the clients who handled this duty the best were those who accepted their situation, built time out for themselves by calling on family or hiring caregivers, and did what they could -- and no more. Those who did too much got burned out and, often, resentful; those who did too little often had regret.
Fair, but not rational
Fairness drives us in ways that may not appear rational. Schiller and Akerlof contend that the current economic crisis was, in part, the result of this. In part, "it was caused precisely by our changing confidence, temptations, envy, resentment and illusions -- and especially by changing stories about the nature of the economy."
If you feel terrible about your losses and are choosing to take on more risk to get your portfolio back to even, you are being guided by temptation. The decision of how much risk you should take is a spending and temperament decision, without regard to portfolio growth or contraction.
If someone is telling you that they sidestepped this market and are making money hand over fist, you are in danger of being ruled by envy. Certainly there were some who fared well as the market plummeted, but check out their long-term track record to help you decide whether it was good fortune or great skill.
If you believe that things are going to stay just the way that they are, then this is an illusion. When do things ever stay the same? They get better and they get worse. You can count on change, but you can't count on its direction.
So the next time it's just not fair that the market falls (which it will) or something else doesn't go your way (which it won't) or someone cuts you off (which they will), don't think about getting even. The less you keep score, the happier the journey.
Spend your life wisely.
Ross Levin is founding principal of Accredited Investors Inc. in Edina. He is a certified financial planner and author of "The Wealth Management Index." His Gains & Losses column appears on the fourth and fifth Sundays of the month. His e-mail is firstname.lastname@example.org.