November 1, 2023

Economic Uncertainty

Economic Uncertainty


Prominent Wall Street executives’ concerns regarding the economy and financial stability of the US have amplified in recent days. Many experts in the area are suggesting the interest rate will continue to rise and could surpass 7%. This apprehension is driving a more cautious approach towards risk-taking among these financial leaders. This caution is likely to be mirrored by investors and consumers as well. As individuals become increasingly cautious, this will create a feedback loop that will increase feelings of fear and uncertainty, possibly leading to an even larger economic contraction as a result.

Client Impact

The narratives from Wall Street executives serve as a bellwether for the financial community, and their cautious stance is likely to resonate with your clients, prompting a re-evaluation of risk and financial plans. Some possible implications include:

  • Increased Caution: Many investors will follow suit and adopt a more cautious approach to their financial strategies.
  • Seeking Safety: There might be a shift towards traditionally safer assets as investors look to protect their portfolios from interest rate volatility.
  • Demand for Hedging: Investors might seek to hedge against rising interest rates, leading to increased demand for financial products that provide such hedging opportunities.
  • Budget Concerns: Higher interest rates can impact borrowing costs for individuals, leading to reduced spending, more defaults, and less access to liquidity.
  • Wanting Reassurance: Investors may require more reassurance and want to feel increased trust and safety from their Financial Professionals during this time.


These headlines and the impending response from investors highlight the undeniable importance of recognizing and addressing client emotions. Research on risk-taking has emphasized the especially influential role of two emotions: hope and fear. Feelings of hope tend to increase risk-taking as it focuses individuals on potential rewards; while feelings of fear tend to increase risk aversion as individuals focus more on the negative potential outcomes. Therefore, as general fear increases in the US, risk aversion will increase overall—this means that both individuals and companies (which are run by individuals) will display greater caution, avoid risk-taking whenever possible, and will introduce cost-saving measures (i.e., layoffs, reduced spending, etc.). This increased risk aversion has a detrimental effect on the entire economy as risk-taking leads to innovation, entrepreneurship, and economic growth. Thus, as fear drowns out hope, economic uncertainty increases and, in turn, intensifies feelings of fear—essentially creating a fear feedback loop and increasing risk aversion in the process.

Clients who show loss aversion, herding (or Fear of Missing Out), recency bias, and hindsight bias will be particularly susceptible to these prognostications of a recession and financial instability.

  • Clients who are loss averse are already more prone to fear and negative feelings about risks and uncertainty. Increased feelings of fear will only magnify the psychological impact of potential losses and will lead to further risk aversion.
  • Recommendation: Encourage a long-term perspective when feelings of fear are escalating. Demonstrating the overall expected growth from their existing strategy over a longer time horizon will diminish the role of losses and alleviate their concerns. It can be especially impactful to demonstrate how the market responds after periods of high inflation and show the difference in potential returns for an investor who had stayed the course during that time vs. one who reallocated.

  • Clients who are prone to herding or the Fear of Missing Out (FoMO) will infer that the feelings of financial experts are a reasonable input into determining their own financial strategies. They will also be more likely to preemptively reassess their financial plans under the belief that most people will soon do the same.
  • Recommendation: Offer guided exploration sessions to evaluate new or trending investment opportunities together, promoting a thorough evaluation process over impulsive decision-making. You can also use this time to expose the client to alternative perspectives and responses, reducing the desire to succumb to herding.

  • Clients who have a recency bias will weigh recent news and trends more heavily than historical data or statistics when taking a course of action. This means that increased feelings of fear will be weighted more heavily in their financial decision-making processes, and they will be unlikely to consider other inputs.
  • Recommendation: Help broaden this client’s perspective by providing historical data and long-term trends. You can also implement a structured decision-making framework that prompts consideration of both recent and historical data, helping to provide balance and incorporate long-term thinking (vs. responding to shorter-term market fluctuations).

  • Clients who are more prone to hindsight bias will put more stock in the predictions and feelings of top financial executives. This is because individuals who have a higher degree of this bias and more likely to believe the future is predictable (because outcomes seem obvious when they look backward). Thus, these clients will be more reactive to this news and more likely to express concerns and a desire to reevaluate their financial plans as a result.
  • Recommendation: Encourage the practice of documenting decisions, rationales, and expectations at the point of decision (i.e., before the outcome is known). This documentation can serve as a valuable reference to compare initial expectations with outcomes, helping to highlight the bias when it occurs. This also serves to help the client understand humans’ limited ability to make accurate long-term predictions repeatedly, thus increasing skepticism regarding such predictions going forward.

Ultimately, regular communication with clients experiencing any one of these biases will go a long way to reduce fear and alleviate anxiety. While confronting clients’ emotions head-on may feel intimidating or beyond the scope of your role as a Financial Professional, ignoring them will lead to miscommunications and suboptimal financial decision-making. Embracing client emotions isn’t synonymous with having emotional conversations, rather it’s about systematically addressing biases that are driven by emotions and helping your clients achieve their financial goals and aspirations. Without addressing these behavioral tendencies, your clients are at risk of deviating from their plans and failing to meet the goals they have set for themselves.

Atlas Point

Atlas Point can help you quickly and easily identify which of your clients are most prone to behavioral tendencies discussed above. You can assess clients for several biases, including loss aversion, recency, herding, and hindsight, using our signature Financial Virtues™ survey. You can try our Financial Virtues survey here.

Atlas Point also has several Pulse Checks™ that can help you determine whether a client has a particular behavioral bias and the strength of that bias: