Magical thinking

JP Morgan himself was once quoted as saying: "Millionaires don't use astrology. Billionaires do". [1]

In Chinese IPOs, firms with lucky numbers in their listing codes got consistently better subscriptions and fared significantly better in post-IPO share outcomes.[2]

In India, the success of firms and sites such as askganesha.com [3] - an astrology based investment decision aid, shows that middle class and high net worth Indians routinely consult astrologers and gurus before deciding when to invest, where to build, or whom to ally with. We may be aware of these things, but are they changing in an increasingly homogenised world? And what can we do to influence overseas investors, if anything?

Superstition is a psychological phenomenon with cultural and contextual manifestations. It even exists in animals.

You may be familiar with Skinner, an experimental psychologist from the 1960s who devised the 'skinner box'- a simple device where animals would get rewards or punishments based on which lever they pressed. In one set of experiments, pigeons had to work out the sequence of presses that would get them some bird seed. As expected, the birds were able to experiment and work out the correct sequence of right or left lever, and they exhibited memory for this. They were even able to adapt to changing sequences. However, when the sequence was changed so as to become inconsistent, a strange effect was noticed: the pigeons would go round in circles, lift one leg, flap a wing or some other odd behaviour. This was evidence that the birds developed irrational responses to control unpredictable outcomes: the basic definition of superstition.

In the Western world, superstitions are equally rife and peculiar. Die-hard sports fans and even elite sportspeople, are on the whole far more superstitious than average. Even investment in an actively managed funds could be considered a superstition. When one considers that the success of actively managed funds is on the whole no better than by chance, we must conclude that investing in such a fund blindly is the result of an irrational belief: that a set of people with consensual, not evidence-based, authority, is still better than chance. 

The science of superstition.

In neuroscience, superstitions are the result of interaction between two centres: the primal centres and the neocortex. The primal need is to satisfy the drives for survival, security, acquisition, superiority, belonging, and victory. In primal terms, these needs are difficult to achieve consistently, and reaches out to the more rational part of the brain- the neocortex- to assist. The neocortex solves problems and identifies patterns; it identifies methods and forms inferences about what the rules are in any given situation. The neocortex solves problems using inductive reasoning: if I try X, then Y should happen. Sometimes, the neocortex will make an error: insufficient knowledge, or looking to the wrong factors. X leading to Y is just a coincidence, but it is taken as a solution. A superstition is formed, and kept in place by things such as observer bias and magical thinking. The ultimate need is from the primal centre: the centre for survival, which, being driven by simplicity, is satisfied with the solution. The person goes ahead with it.

Trying to decide or predict something difficult comes with the rational caveat that some things, such as the weather, are not within obvious control. This does not stop the mind from trying to influence the uncontrollable. The brain then devises 'magical thinking': an illusion of control. A sportsperson who is not consistently at his best may wear a lucky bracelet in the belief that this will bring him closer to his top form. An investor may take a lucky pen, or only invest on a certain day. When superstitions find traction within a subculture, they become rituals and cultural beliefs, sometimes going on to form narratives, myths and bases of religious outlooks.

Just another type of bias

Why should we be concerned? Western investment culture is perhaps less influenced by cultural or superstitious concerns, but not as much as we would like to think. Observing your culture from within it does blind you to the distinctions between what the real drivers of your decisions are: is it evidence, or culture? Regardless of the distinction, one thing appears to hold true: detached rationality is not the prevailing behavioural force in investment decisions in any culture. 

The pen is not mightier than the sword: the warriors have killed the penman, and have learned to write for themselves.

The reasons for this are neuroscientific: primal psychology is far more potent as a motive force than optimised rationality. Primal drives are both more powerful and more rapid than rational ones, and primal forces are further accentuated in large groups immersed in complex decisions. Primal behaviour also trumps rationality in game theory; primal methods of problem solving, such as hunger, greed, tribalism, and aggression, win out over rational and egalitarian ideals. The pen is not mightier than the sword: the warriors have killed the penman, and have learned to write for themselves. They write about loyalty, hierarchy, myths, gods, luck, and victory through war and appeasing the gods. These codes have become embedded in cultures in different ways over thousands of years, and as such we need to know that they are here to stay: we are evolved to the state where they have ensured our survival and domination as a species. They are potent, and dominant, in all aspects of life.

Chinese Superstition and culture in finance.

Chinese investing culture is considerably influenced by money. Tsaoist religion has a multitude of Gods who Chinese people pray to in order to bring wealth. Caishen, also called Tsai-chen Yeh, is the most important.

Typically shown dressed in magnificent finery, Tsai-chen Yeh presides over a multitude of other smaller deities, each of whom controls either a specific direction or area- North, South, etc- or type of wealth - gambling, civil wealth, luck, wealth from the Earth, etc.

In the Chinese New Year Tsai Chen is said to come down to inspect the people and determine their wealth for the coming year. This is therefore a very important time in Chinese culture. The rituals around this time are many, including practices to burn off the last year's memories, and eating certain types of food like dumplings, which symbolise gold ingots.

Other Gods of wealth, and by no means an exhaustive list:

A Military Wealth God of wealth

A God of collecting treasures

A Northerly direction god of wealth

A Southerly direction god of wealth

A God of profitability

South East, South West, North East, etc. Gods of wealth

A crazy God of wealth

A God of Gamblers

A righteous God of Wealth

A Child God of wealth

Each god has a story, a locale, a ritual for bringing their best favour, and most importantly, a list of dos and don'ts as to how to worship them, lucky and unlucky foods, and things to avoid.

It is fair to say that within Chinese nation, the Chinese investing style still seems stable and culturally bound. An unquantified, but probably very large, portion of the Chinese Han population, irrespective of personal worth, view money as a direct result of their favour with the gods. Each god must therefore be favoured and courted to invite wealth and good fortune.

Symbols, foods and rituals

Spotting a rare animal, or a common animal doing something unusual on a day when something good happens (think waving cat) invites the interpretation that the animal was somehow instrumental in the outcome.

In the Chinese case, bats bring in wealth. With a rationale originating in energies of living things arising from feng-shui, bats are thought to nest in areas with exceptionally good energy, therefore Chinese take bats nesting in a building or area as a sign that people there will prosper.

Symbols give a totemic power to an image; neuroscientifically, we have specific neurones that fire when we see danger signs such as sharp teeth, or when we see symmetry. Animals incorporated into symbols combine to satisfy dual primal drivers. For this reason, an image of bats surrounding "Shou" character in a circular pattern has become symbolic of wealth.

The number 8 in both Mandarin and Cantonese sounds the same as the word for good fortune. Logos, 8th floors, and personal numbers with 8 in them are considered to bring affluence. The number 4 sounds similar to the word for death. A study in 2014 found that Chinese investors were 50% more likely to invest in companies with listing numbers ending in the number 8 than in the number 4.

Keeping a small dish of spare change in the house, as is also keeping a small amount of salt on the person, are rituals to invite wealth. The salt is changed often because it loses potency over time.

Cultural considerations

Chinese corporations may be formed by recognisable legislative and political actions, but their success over time depends much more on their adherence to cultural norms of hierarchy, familial authority, and clan loyalty: enduring cultural values.

The Confucian honour system is very potent in influencing business relations. The Chinese have a much greater preference for interpersonal relationships over legislative processes, favouring mediation and meaningful connection over Western algorithms and rationality.

Taking a list of guiding codes and comparing them to a neuropsychological mindset:

Indian superstitions

The Indian God of wealth is Lakshmi.

The Hindu religion has many tens of thousands of gods, but Lakshmi is particularly associated with wealth. In the Hindu faith, Lakshmi represents wealth and purity in all forms, material and spiritual. The distinction between material wealth and spiritual wealth is thus blurred; this should be kept in mind when considering how Indians view the acquisition of wealth.

Lakshmi has eight forms, each for different kinds of wealth. Dhana Lakshmi, dressed in red with six arms, is the incarnation that represents wealth as money or gold, and also represents wealth of character such as inner strength, talent, and virtue. Prayer songs to Dhana Lakshmi ore offered in particular at certain times, namely full moon nights, and annually at Diwali.

Astrology and Ayurveda

Indian vedic astrology is widely used by people across the wealth spectrum in India, to make decisions on investment. Its custodians and experts are vedic mediums and consultants who practice as commonly and ordinarily as we might see management consultants in Europe.

Even a simple online search will find many astrologers offering to predict a person's wealth by using vedic methods; a typical form asks for things such as birth date, gender, time of birth, day of birth and place of birth. Fees are around US$200 for a simple report based on these few criteria.

Wealth is the second 'house' in a person's horoscope. The client's horoscope is consulted and considered alongside factors such as other Vedic timeframes and positions of beneficial planets like Jupiter and Venus, for good and bad periods to invest, better locations to keep money or make investment. It is an exceedingly complex and artfully interlinked system.

Newer generations of Indians are less inclined to believe or consult with vedic practitioners, often putting them at odds with their seniors and elders. The wealthiest classes are older, part of the generation which place a high weight on these kinds of influences. Whilst one might expect that this is therefore a dying art, there is a resurgence in spiritual practice and divination among the younger middle classes, again perhaps in response to a more uncertain and complex environment, but also as part of the trend toward conservatism and traditionalism that one observes in any demographic as it ages.

Superstitions and culturally bound decision making processes are very important in Indians' financial decisions, irrespective of wealth or background.

There is a multitude of symbols, gemstones, vegetables and fruits, and other practices that are variously employed and depended upon by Indians from different regions and classes. Discussing these in detail is beyond the scope of this blog; most importantly, the point to make is that superstitions and culturally bound decision making processes are very important in Indians' financial decisions, irrespective of wealth or background

The Indians were essential to mathematics; zero, or nought, was an Indian invention. Zero has negative connotations in Indian culture, being associated with death. In Indian gifts or payments of money, often a single integer appears at the end, so rather than 100 or 2000, we see 101 or 2001. This is especially prevalent in gifts where people are uniting, for example marriages, but is also seen in payments.

Decision hierarchies

There is no such thing as teamwork in the horizontal concept in the Indian understanding of management. Institutions are run very top-down, and even consecutive members of a hierarchy do not question their superiors' beliefs. Even misunderstandings are not raised to ones' face: they are taken down the chain or to to this side, to someone outside the hierarchy, for example friend or family member.

"There are many Indias within India, and whatever you say about India, the opposite is also true."

Negotiations are circular, interlaced with interruptions and off-topic musings, and meetings , even if arranged months in advance, are routinely rearranged multiple times ahead of schedule including on the day in question. Once they commence, negotiations seldom commence with the items in question; pleasantries and intractable segues are the norm. Meetings are casually and frequently interrupted, and routinely run well beyond intended schedule. The flip side of this is that Indians are often able and prepared to undertake tasks at the last minute, making them more flexible than their Western counterparts.

A caveat: India is, above all, an assembly of contradictions. There are huge variations in practice between different regions, and even in the same place, different people behave differently. Cambridge economist Joan Robinson once said "There are many Indias within India, and whatever you say about India, the opposite is also true."

The decision trends are evolving

People from all cultures are becoming more internationally fluent, but the tendency to rely on non-rational influences and strong culturally bound cultural codes remains strong. The evidence seems to be suggesting that there is a polarising trend: as the world becomes more connected and globalised, and investments less certain, some investors retreat into the safety of the patterns and beliefs they know best, while others are becoming more versatile and multilingual.

Beyond chakras and gods

Even the higher and more complex notions of culture, large group relations, and prevailing human hierarchies, have primal drives behind them. We have evolved beyond the simple primal motives of troop survival: the evolving neocortex has refined them to offer better solutions to our collective survival such as trade, laws and rules, simple morality, customs and rituals..

Knowing about a culture and enacting this knowledge in an effective way is nevertheless part of the skill and art of decoding, interpreting, and courting favour and trust from investment partners and forces in a global business environment.

The force and weight of cultural and ritual phenomena are still beholden, however, in a large part to the driving force of survival, and moreover, they do not enjoy the same level of influence on the primally dominated emotions and instincts that predict our behaviour when things are too complex or unknowable.

A response to hypercomplexity

What happens when there are multiple transnational participants, all of whom are trying to be culturally aware, accommodating and sensitive to win trust and cooperation, or more cynically, to lower each other's defences? It would be foolish to play the 20th century role of the paternal, obsequious diplomat proffering simple phrases or cliched gifts in a world which is far more evolved and equalised compared to the 20th century.

Modern investments, mergers and acquisitions happen wherein the participants in a given deal have reversed or equalised historic power balances and technological sophistication.

The Chinese or Indian investor could be offended, puzzled, or equally, they might gladly play that part and outwit the naive foreigner who tries to pander to some misguided projection of their cultural conformity. Bad idea. They will always know their rules better than you. There is no substitute for getting to know individuals as individuals.

Modern internationalism sees all players adjusting to each other to increasing extents. Business transaction customs are less distinct, and what worked with an overseas client even 10 years ago may not work with his modern successor 10 years on. It would be foolish to approach the issue as a simple ethnographic exercise, but there is an emerging solution.

When situations are unwieldy and chaotic, go back to basics, to first principles. This would explain the polarising effect: different people become more encamped into either conservative, insular decision styles, or extravert internationalism.

Back to basics: primal psychology

So what can we possibly do to cope? We go back to seeing what unites us all as human beings. The mother of all decisions styles, the source of all motivation to take risk and grow, is primal psychology. Primal psychology once again emerges as a key to understanding and mastering this complex arena. In today's hyper-complex corporate and capital intersections, primal psychology has emerged as the cutting edge of Occam's razor.

Primal psychology allows for us to categorise and adjust for every force that is present in a transaction. We can pinpoint where and when decisions and driving forces come into play, and hang cultural considerations on them to create an emerging model for a successful deal. 

[1] Link https://www.goodreads.com/quotes/35649-millionaires-don-t-use-astrology-billionaires-do

[2] Herschleifer et al (2014)

[3] https://www.askganesha.com/