Circumstances matter
One of the shortcomings of behavioural economics and psychology is that in experiments, researchers focus on personality traits and socio-economic factors, but pay little attention to the circumstances a person is in. I have written in my Virtuous Investor series in 2020 about the risks involved in this. In particular, I pointed out the excellent book by Lisa Feldman Barrett that shows how circumstances influence our decisions. Even a small change in circumstances can turn these experiments upside down.
In 2006, Ariel Rubinstein ran a couple of experiments with students at Harvard and in Israel who majored in mathematics, law, philosophy, and business administration. He showed that when having to decide how many workers they would fire to increase the profits of a company, business students were much more ruthless than students of other subject matters and he concluded that it is the economics and business training that created a strong emphasis on profit maximisation in their actions while other students considered the social and welfare implications of firing workers and thus cut fewer jobs. Since then, this result has been repeated in different countries, always with similar results. So, it’s not a problem of being unable to replicate the results.
Now, another team from Israel and the US repeated these experiments with students in Israel and in Texas, but with a twist. Before deciding on how many jobs to cut in order to increase profits at a company, they had to do a simple word search. You know, those quizzes where you have a seemingly random assortment of letters, but hidden in it are a couple of words.
The control group was given a quiz where neutral words like ‘book’, ‘umbrella’ or ‘garbage bin’ were hidden. The other half of the volunteers were given a quiz where capitalist words like ‘inflation’, ‘monopoly’ or ‘income tax’ were hidden. Alternatively, instead of capitalist words, they were given words that focused on social cohesion and communal values like ‘equality’ or ‘social norm’.
The chart below shows the difference in job cuts relative to the control group for economics students and non-economics students in the US (the results in Israel are very similar). The important insight here is that both groups of students behaved pretty much the same, depending on the word search quiz they were primed with.
Jobs retained vs control group
Source: Snir et al. (2026)
What this experiment shows is that circumstances as innocuous as word searches can completely overturn the effect of education and other socio-economic variables, and that is important for investors as well.
It shows once again that your investment decisions are not only determined by your education, your job, your age, or your wealth. They are at least as much influenced by your circumstances at the moment you are making the decision. If you are angry, you are likely to make many investment mistakes. Similarly, if you are stressed or sleep-deprived.
Control the circumstances in which you make a decision, and you control the outcome. The best decisions are made in a neutral state of mind, free from immediate pressures and stress factors. Remember that the next time markets are chaotic and hectic, and you feel the need to change something in your portfolio. Even better, try to create an oasis of tranquillity in which you can retreat before making important decisions about your investments.
If a five-minute word search can override years of education and completely change how many people get fired in an experiment, imagine what a screen full of red does to a portfolio manager's risk tolerance at 3pm on a Monday. Or what six consecutive weeks of "Bitcoin to zero" headlines do to a retail holder sitting alone with their phone at midnight. The circumstances aren't noise around the decision. They ARE the decision, and almost nobody designs their decision-making environment deliberately.
That's why every investment process that works has a ritual built into it. Buffett reads in Omaha, away from Wall Street. Hohn runs concentrated positions from London, not New York. The ritual creates the oasis the piece describes, a controlled environment where the circumstances are neutral enough that the decision reflects the thesis rather than the mood. The people who outperform over decades aren't smarter about the data. They're more disciplined about the conditions under which they look at it.
Another illustration of the importance of surrounding yourself with people with different viewpoints. The corrosiveness of a monoculture within an organisation is the antithesis of resilience.