Is the world really as black and white as a Rorschach inkblot test? Maybe… but maybe not.

Traditionally speaking, when it comes to how we view the world, there are two schools of thought: optimism and pessimism. Glass half full or glass half empty. In reality, most of us will actually fall somewhere in between on the optimism/pessimism spectrum. Where we fall along that spectrum is a fundamental human trait1 reflective of our cognitive biases.

Optimistic and Pessimistic Behavior Manifests Itself in Anchoring Bias

“Anchoring” is a form of cognitive bias related to how we process information, when we rely too heavily on certain data or information in making a decision. The anchor is the initial point of information that influences a decision or perception. The bias comes into play when we fail to appropriately adjust to new information because we’re anchored to that original reference point. For example, investors often use their purchase price of a stock as a deciding factor of whether to hold, sell or buy shares, even after they learn conflicting information about the company’s future prospects—how they value the stock’s potential becomes anchored in what they paid for it.

Whether we have a sunny outlook or tend to focus on the negative, our life orientation influences how we make decisions and how we define success. That’s also the case for anchoring and whether we’re objective in receiving new information or place too much emphasis on our past. Our mindset can impact how we manage relationships with clients, and it can shape the investment experience for clients.

An important distinction here is that a person’s mindset is one factor that shapes their decisions and perceptions—it doesn’t determine them. In fact, experts claim that the real difference between optimists and pessimists isn’t in their level of happiness or how they perceive a situation, but rather it’s how they cope.2 So while a bias like anchoring might exist, that doesn’t necessarily mean that it always will—or that it can’t be disrupted.

A Rosier Outlook Isn’t Necessarily a Better Mindset

Having an optimistic or pessimistic life orientation is not a good or bad thing, just like being an introvert or an extrovert is neither good nor bad. Both optimists and pessimists have their flaws, especially when taken to their extremes.

The solution is to find that middle ground in an effort to close the behavior gap. Neither of the two should be ignored or over-relied upon. When clients are more self-aware of their behavior and subconscious tendencies, they can improve their financial decision making.

Curious as to how your clients (or you) view the world? Take the Life Orientation Test,3 a measure designed to assess individual differences in generalized optimism vs. pessimism. Knowing where one falls on the spectrum can promote more productive communication and ultimately lead to better financial life outcomes.

Behavioral coaching is an important puzzle piece for the successful execution of a client’s financial plan. In part 2 of my ‘Understanding Anchoring Bias and Client Mindsets’ series , I’ll explore how anchoring behavior plays out when making investment decisions. Acknowledging its existence and examining how it may influence a client’s decision making are critical to avoiding the negative effects of anchoring.

1Bates, Timothy C. (25 February 2015). "The glass is half full and half empty: A population-representative twin study testing if optimism and pessimism are distinct systems." The Journal of Positive Psychology.
2Optimism, pessimism and mental health: A twin/adoption analysis. Plomin, Robert; Scheier, Michael F.; Bergeman, C.s.; Pedersen, N.l.; Nesselroade, J.r.; Mcclearn, G.e.; In: Personality and Individual Differences, Vol. 13, No. 8, 01.08.1992
3Scheier, M. F., & Carver, C. S. (1992). Effects of optimism on psychological and physical well-being: Theoretical overview and empirical update. Cognitive Therapy and Research, 16, 201–228; Scheier, M. F., Carver, C. S., & Bridges, M. W. (1994). Distinguishing optimism from neuroticism (and trait anxiety, self-mastery, and self-esteem) — A revaluation of the life orientation test. Journal of Personality and Social Psychology, 67, 1063–1078; Carver, C. S., Scheier, M. F., & Segerstrom, S. C.(2010). Optimism. Clinical Psychology Review, 30, 879–889.