· Uncategorized
Lehman Brothers, Merrill Lynch, AIG – it seems as though for many of us, we are living on or in a pack of cards which are collapsing all around us.
As I write this financial crisis is everyone’s preoccupation, so by the time you read this, things might be a lot worse, or much better.


The outcome feels, from the way it’s reported in the press, like it depends to a large extent on decisions that remote authorities in power make.


So for the rest of us who might be feeling at the hard end of implications of the current financial crisis, the outcome in terms of an individual’s life feels beyond our control. At times like these we naturally consider ourselves at the mercy of large scale world events, but our own personal futures hinge crucially on the quality of the decisions we also make when facing crisis.


There is a fascinating branch of psychology devoted to the study of how people make decisions whilst in the midst of crisis and this is referred to as ‘Crisis Decision Theory’; one of the world authorities in this particular field is Dr Kate Sweeny, a psychologist based at the University of Florida.


She has recently published in the prestigious academic journal Psychological Bulletin one of the most respected summaries of how the field can help a non-psychologist who is facing a crisis.


Crisis Decision Theory understands that when we face a crisis our behaviour falls into three key stages and the better you appreciate these phases and grasp how they work, the better equipped you are to survive a crisis in superior condition.


So the first phase found by psychologists is that we tend to make an evaluation of how serious the crisis is.


Crises vary in severity and also the assessment of how serious they are – for one person losing the key to their home is a major crisis, while for another this is merely a mild headache. This phase is vital because it determines how much emotional and intellectual, or any other resource we have available, we devote to addressing the crisis.


Notice that if we evaluate a negative event which captures our attention (one definition of a crisis) as relatively trivial, we may choose to ignore it, but also, fascinatingly enough at the other end of the scale – if an event is too overwhelming – its just too horrible and major to contemplate, then in those circumstances it’s a common human trait to devote few, if any, resources to addressing the crisis.


Kate Sweeny argues in her recent paper this means that its frequently major crises that paradoxically don’t attract enough resources from people facing them. They then prefer to ‘bury their heads in the sand’ or perhaps they are more likely to go into ‘shock’.


How we decide whether a crisis is major or not and exactly how major it is hinges on our estimate of what is at stake and how much we value it. If our financial foundations are threatened then this is obviously something that might lead us to the view we are contemplating a catastrophe.


However the vital psychological bit we often forget is that in fact people vary in the way they value different things. It is also within our power to decide to value something less, which we now feel we are in imminent danger of losing as the result of the current crisis.


Those who are most likely to survive and thrive through a crisis are precisely those who take more control of their lives by re-trenching their value systems. For example, when confronting a financial crisis making an active decision to value status and material comfort less, so reducing the impact of the threat on their emotional equilibrium.


This may also provide the much needed elbow room in which to make some decisions – rather than feeling ‘trapped in the headlights’ and overwhelmed as a result of what feels like a really bad crisis.


Sweeny also points out that recent psychological research has revealed some other key determinants of how we come to decisions about the nature of the predicaments we face. This appraisal element is key, as its the kicking off point in determining what we do about a crisis.


So another problem is whether we decide we brought the crisis upon ourselves or not. This can be quite a complicated decision. For example people sacked from their jobs because of a downturn in the global economy may still have room to blame themselves; because they may know others with the same qualifications or backgrounds, who didn’t get fired albeit being in the same industry. They may then conclude why me? Also you can still blame yourself for not saving enough when times were good, so as to better survive when the economy turned lean.


While it’s useful to learn from our mistakes so as not to repeat them in the future, it’s also clear that self-blame doesn’t seem that helpful whilst in the midst of a crisis.


For example, Kate Sweeny points out that research on victims of sexual assault has found that women who blame themselves for the rape are more likely to end up being unhelpfully avoidant, like refraining from going out again if the attack occurred on the street. Whereas women who do not blame themselves are more likely to engage in more active coping, like taking up self-defence classes, and refusing to allow the event to stop them going out.


It would appear that apportioning blame might be more usefully held over for when a crisis has begun to subside – so like many things in life – timing is everything when it comes to how best a crisis is handled.


Another method that we use to evaluate how bad things really are is our past experience – if as many are suggesting we are facing the kind of tumultuous events in the financial world which come round but once a century – then its easy to see that our past experience may let us down when trying to decide just how bad things are.


Those of us who have weathered several floods, storms or financial cataclysms are in a better position to know more precisely just how bad things really are. In the absence of past experience we may project our worse fears onto the ambiguous predicament we now find ourselves in.


 In the absence of past experience there is a tendency to over-react and exaggerate just how bad things are precisely because there is not past context in which to place them. This tends to happen after ‘once in lifetime’ events and could be seen to be happening after for example the tragedy of 9/11. Those who have experienced many similar crises tend to downwardly regulate the seriousness with which new crises are evaluated – in other words they tend to be more blasé.


Another factor which tends to influence the way we handle a crisis is our decision over how things might otherwise have turned out – referred to by psychologists as counterfactual thinking or what-might-have-been thinking. So if you believed things could have been very different and the current financial crisis was not an inevitable product of the boom years, you are likely to feel worse about it, than if you come to see it as entirely predictable.


The problem with thinking things could have been much better than how they turned out is that this tends to lead to an obsessive preoccupation with picking over the past to try and forensically patch together what went wrong and why. This is not helpful in a crisis. Better to understand that what happened was probably a lot more inevitable than you had realised and that indeed things could have been a lot worse as well.


One final point about how to think about a crisis – Sweeny points out that much seems to hinge on our anticipation of how intensely bad or good we are going to feel in the future if the crisis goes unchecked or our solutions don’t work. In point of fact previous psychological research had established that just as we tend to overestimate how good we are going to feel after taking delivery of a Ferrari, we also tend to overestimate how bad we are going to feel when we lose it. We tend to believe we will feel worse and better in roughly equal measure compared to how we actually end up feeling in the future – which is stubbornly much more a lot like how we feel right now than we realise.


If our ability to anticipate how we are going to feel is so bad we need to take this into account when contemplating a crisis.


The next two phases of decision making when in crisis are thinking about your options and then deciding which option to take. These two phases are to a large extent influenced by phase 1 which was evaluating just how bad the crisis is and what it’s true nature is.


Its easy to say ‘Don’t Panic’ when it some to a crisis – but in fact there are things you need to do rather than simply not panicking – and these are to keep taking decisions – but at all stages to make sure they are the best decisions you can take given your predicament.


Joe Simpson the climber author of the famous book which went on to become the hit film ‘Touching the Void’ puts decision making at the centre of his continued existence. The film and the book are about the true story of his incredible survival against all odds when faced with climbing his way out of a crevasse with a broken foot. He says in the film that when in tough corner the key is to keep making decisions though the temptation might be to give up instead – it’s better to make decisions, even if they turn out to be bad ones – than to make no decisions at all.






Sweeny, Kate Crisis Decision Theory: Decisions in the Face of Negative Events. Psychological Bulletin. 134(1):61-76, January 2008.

%d bloggers like this: