Nothing is softer or more flexible than water, but nothing can resist it.”
Lao Tse.
It is almost always evident that not all of us react the same to adverse, complex, uncertain and risky environments.
In all areas, of course, also in relation to issues that affect our ability to generate or manage wealth or financial conduct, complex environments frequently cause people to make imperfect decisions, which end up deepening the negative scenario and magnifying the effects of financial deterioration, already present.
Different studies have found that there is a function called cognitive flexibility, which refers to the ability that people have, to a greater or lesser extent, to adapt their behavior and thought process in response to changes in the environment.
The opposite condition is cognitive rigidity, which causes many people to “freeze” in particularly complex environments, either repeating the pattern of behavior that served or was efficient in a different environment or condition, or incapacitating them to make new decisions or in other cases, it disables them to process new information that they can incorporate into their analysis and subsequent decision process.
Behind the phenomenon of cognitive flexibility are facts and concrete and extremely important situations that affect the construction or destruction of the heritage or wealth of families. For example, there are studies that show that many people take time to recognize a new financial condition and take even longer to make decisions and actions in accordance with this new reality. Thus, in the event of job loss or a significant temporary increase in debt, as a result of a medical contingency, the time it takes for people to adjust their pattern of financial behavior (in terms of spending and income protection), is associated with This greater or lesser cognitive flexibility and, the more time passes to recognize the new situation and adjust the behavior, the greater the loss of assets that the family faces.
The same applies to adverse economic scenarios, such as the growth of inflation that our country has faced and that is close to levels not seen in the last 20 years. Within many families, there is talk of the very high growth observed in the prices of certain products (as recently happened with lemons and avocados), but measures are not actively proposed within the household to contain spending and try to reduce the inflationary impact and thus avoid potential negative consequences (for example of indebtedness).
In the article “Cognitive Flexibility In Decision – Making: A Neurological Model Of Learning And Change”, by Laureiro-Martínez, Brusoni and Zollo, it was also found that even at the organizational level, people who have “exploratory” type behaviors tend to respond better and faster in situations with higher levels of uncertainty, which causes a faster and more favorable result in their decisions, compared to people with personality patterns that tend to be slower in their decision process, associated with phenomena of cognitive rigidity.
The phenomenon is very complex, but it is present in our daily lives and its consequences are permanent.
If we think about the last two years in the country, with uncertain and changing economic, social, political and even health environments, in which contradictory information is frequently received, the ability we have to process and discriminate information and adapt it to our daily decisions , will largely determine the size and nature of the effect this situation will have on our present and future finances.
The author is a political scientist, marketer, financier, specialist in behavioral economics and professor at the Faculty of Economics at UNAM. CEO of Fibra Educa and President of the Council for the Promotion of Educational Savings of Mexicana de Becas.
CEO of Fibra Educa and President of the Council for the Promotion of Educational Savings
behavioral economics
The author is a political scientist, marketer, financier, specialist in behavioral economics and professor at the Faculty of Economics at UNAM. CEO of Fibra Educa and President of the Council for the Promotion of Educational Savings.
Follow him on Twitter: @martinezsolares