SCIENCE: The Ostrich Effect, or why budgeting feels so hard
Emotional salience, self-preservation, and how money triggers anxiety
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Y’all remember Josh from last week? As a quick recap, Josh was a surgeon whose goal was to make a million dollars a year to feel like he was middle class in San Francisco—but who eventually turned down a three-million-dollar-a-year job because the money “felt wrong”?
I think about Josh nearly once a week—because his story just feels so ridiculous. Like everything about it... Needing to make a million dollars a year to feel middle class feels ridiculous. Turning down a salary three times that size, when a million a year was your goal—also feels ridiculous.
But it’s not. Even if the decisions Josh made feel ridiculous to me, there’s nothing actually strange about them. They’re perfectly reasonable and explainable, because of two cognitive effects.
Today, we’re going to nerd out on emotional salience, the ostrich effect, and why these things make consequential decisions much more difficult.
Let’s dive in.
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Cancer, oranges, and Stage IV cancer: introducing emotional salience
Let me make an obvious statement: not all facts are created equal.
“Bananas and oranges are berries; strawberries and raspberries are not”—that is a fact.
“You have Stage IV cancer”—also a fact.
One obviously hits much harder than the other.
What about this fact: “The Cowboys didn’t make it to the Super Bowl this year.”
To me, who doesn’t follow football (and had to look up how the Cowboys did this year), this fact is pretty dang neutral. It makes me feel absolutely nothing, despite having grown up in Texas.
To my Dallas friends, it’s a crushing fact, while to my Patriots-obsessed Boston friends, it might just be a cause for rejoicing.
In other words, not all facts are created equal—and the exact same fact may be perceived very differently.
There’s a word for this. It’s called salience.
Some facts have more salience than others; that is, some facts just “hit” harder than others. They have an emotional weight attached to them that—this is important—alters how we perceive them, how much mental energy we devote to them, how quickly we encode them in our memory, and even how much effort our brains expend to keep those memories at the front of our minds.
“You have Stage IV cancer” is a pretty broadly emotionally salient fact. Just about everyone would expend a lot of energy on that fact. “The Cowboys lost,” on the other hand, has different emotional salience for me than it might for you.
There’s some evidence that salience is more than just an observable phenomenon. In fact, some psychological researchers posit that not only are facts emotionally varied, but that this varied salience leads to frank cognitive distortions.
In other words, we all live in different worlds, that my reality is different than yours. My brain has encoded a completely different picture of the world than yours has, all because we find things to be differently salient.
But wait. It gets even weirder.
Photo by Andrey Tikhonovskiy on Unsplash
The Ostrich Effect
What if we actively seek to encode different realities in our brains? In 2009, Niklas Karlsson and his colleagues had a theory.
They started with the—mostly well-accepted—fact that people gain happiness (or, to use economist speak, “derive utility”) from the things they believe. My beliefs and your beliefs have certain happiness points assigned to them.
From there, Karlsson and his colleagues hypothesized that people actual have an internal incentive to maintain the beliefs that make them happiest. One way they could do that, given all the stuff we said about salience above, is by controlling what information they receive and when.
Their intuition, then, was that you and I regulate the impact of news—good or bad—on our happiness by controlling how much news we receive.
They wrote,
If knowing definitively that an outcome is bad is worse than merely suspecting it, then people may try to shield themselves from receiving definitive information when they suspect the news may be adverse.
In other words, if I get a whiff that some news is bad, I might just decide I have no desire to find out more. On the other hand, if that whiff is positive, then maybe I actually would want to find out more.
They tested their hypothesis by giving people vague information first, and then asking them if they wanted to learn more definitive information.
And what they found was exactly that.
When the preliminary vague news was bad—and even when it was just ambiguous—people chose to avoid getting the definitive news. But when the preliminary information was good, people sought out the definitive.
This, they called the Ostrich Effect. We bury our heads in the sand to avoid exposing ourselves to information we even suspect might be negative!
Budgeting and the Ostrich Effect
What’s this all got to do with Josh and his budget? What became clear in our conversations was that Josh hadn’t truly been able to put pen to paper and figure out what his budget needed. $400K was too little, but even $3 million didn’t make sense.
Not because any of that was objectively true, but because Josh, like so many of us, got twitchy about budgeting.
Because what is budgeting, after all, if not taking vague, preliminary vibes about your financial situation, and then making them definitive?
Facing your budget is the quintessential Ostrich Effect.
John Grable and his colleagues looked at who actually signs up to work with a financial advisor. They found that one of the biggest predictors of people not signing up was—counterintuitively?—anxiety about their finances.
You’d think that anxiety about finances would drive people toward a financial advisor, but it did the exact opposite.
Which is exactly what the Ostrich Effect would predict. If you’re worried that your finances might not be up to where you want them, then your brain Ostriches.
Since it is naturally predisposed to avoiding definitive information if the prelim vibes are off, then it does everything not to kill any residual happiness you have.
And what if, like Josh, you’re considering a major, consequential decision that might have an impact on your finances? Well, the intracranial warning bells couldn’t be any louder.
Which is also why advice like “just get your budget in order” or “all you have to do is download a budgeting app,” makes me a little sad. Sure, that’s the right objective advice.
And emotionally, it sucks. If we’re worried about our finances, chastening us to get definitive information will trigger the Ostrich to run away quicker than an introvert at a networking event.
So where does that leave us?
So how can we approach our finances? Is there a mindful way to build a financial runway that keeps that Ostrich at bay?
The answer is yes. Stick around…that’s what next week is all about.
Consequential decisions aren’t easy.
If they were, you wouldn’t struggle with them!
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