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Riddle: How is a bubble (economic) like the process of grieving?
After stretching your emotional range, you hope to emerge a bit wiser. These are learning experiences from which you can discover facets of your personality and beliefs that you might not have been aware of previously. Why? Because these experiences are a stress test of your assumptions about yourself and other people and of your inner capacity to deal with uncertainty. How well do you adapt to changing circumstances?
According to The Economist magazine, an economic bubble, e.g., in cryptocurrencies like Bitcoin, can be described in five stages:
1) Displacement
2) Boom
3) Euphoria
4) Financial distress
5) Revulsion
Graphically, the level of “positivity”, some measure of optimism, of forward-moving energy, could be represented as a wave rising to a peak in Stage 3, then a precipitous drop in Stage 4, followed by a flattening out at some low level in Stage 5.
By definition, these stages reflect emotional states. What kinds of people experience an economic “bubble”? During the event, they are struggling between Greed versus Fear. These emotions tend to pull us in opposite directions of value and behavior. When we hear about seemingly easy successes, e.g., making incredible returns on investment of 100X or more on the purchase of stock, many of us can’t help feeling that we might be missing a great opportunity. Don’t we naturally compare what we are thinking and doing with the actions of others? Sometimes, greed and FOMO (fear of missing out) can overwhelm commonsense logic, even in people who believe themselves to be very rational and analytical.
Dr. Elisabeth Kubler-Ross, one of the most insightful pioneers in the field of grieving, described the process as having 5 stages:
1) Denial
2) Anger
3) Bargaining
4) Depression
5) Acceptance
Grieving is a consequence of some painful event that has already occurred, such as the death of a loved one, or some significant loss, such as a stock market crash. Each of the stages reflects a change of perspective, how we interpret what we are perceiving and experiencing, as we rebuild our lives to achieve a sense of normalcy.
In the first stage of grief, what we see and hear seems unreal. How could this terrible event have happened? In the context of a bubble, when we first hear reports of returns of investment of 100X or even 1000X, we can’t believe those are real, since we have never personally experienced such events. Isn’t this a kind of denial? In the context of the Economist article, these outlier data points would have to be moved from the realm of what we believe is impossible to “possible reality”.
As more people, even friends and family, tell us they are participating in a hot stock or Bitcoin, Greed and FOMO seriously kick in. In these energy states, we evangelize and rationalize what we want. We start to believe our own arguments, which is how anger grows as well, since that needs a lot of self-justification. Emotions in boom times have a similar feel. Colloquially, we often use the words “crazy” or “insane” to describe the mindset when we participate in a bubble.
Right after a bubble appears to peak, when the decline might not be immediately steep, the analytical mind is aroused, struggling to decide whether or not to get out, take whatever gains have accrued, or “cut losses”. Isn’t that bargaining (Stage 3 of grieving) within our minds?
In stage 4 of a bubble, an actual loss is evident and the emotional distress, i.e., negative feelings, is at a high point. Some people can feel paralyzed when they realize that there are no “good decisions” at that point. Isn’t that a depressing state? Maybe grief begins?
Eventually, for those able to ride out the emotional roller coaster ride of a bubble, the mind, heart and spirit somehow manage to find a new balance. Maybe the remaining value of the investment is low enough that all we can do is laugh ruefully at our own silliness, whether the investment was liquidated or not. In grief, as time passes, perspectives change, our energy begins to shift to other priorities. Life goes on. Our instinct for self-preservation kicks in. Our emotions are distracted to new people and new experiences. This feels like “acceptance”.
When a bubble bursts, the final acceptance of the reality of the nightmare state is also a re-balancing of expectations, priorities, and hopes. We might swear off indulging in schemes that sound too good to be true – until the next one comes along.
Aren’t these flows of emotional states fascinating? Will self-awareness help us avoid jumping on bubbles or losing ourselves in irresolvable grief? How might this allow us to help others? Grief is an unavoidable part of life and may be important for our growth. What is the positive value of bubbles?
