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ETF Specialist

When Markets Are Tough, Don't Look

When market volatility ticks up, investors may be best served by tuning out.


In Thinking, Fast and Slow, Nobel Memorial Prize in Economic Sciences laureate Daniel Kahneman summarizes decades of work he has done to better understand the way that we think. The book’s title alludes to the two speeds, or in Kahneman’s terms, systems, that we use to process information. System 1 is fast, System 2 is slow. System 1 allows us to respond quickly to external stimuli with limited information. System 2 is more pensive and calculated. Each has its own benefits and drawbacks and together they can help explain the various cognitive biases that Kahneman and his close collaborator Amos Tversky documented.

We owe System 1 an immense debt of gratitude. Were it not for our ability to react quickly, we would not be here. System 1 kept our ancestors from being mauled by megafauna. And while System 1 is still very useful to us, there are many modern-day applications where it can do more harm than good. Investing is one of them.

Ben Johnson does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.