Americans behave predictably when faced with uncertainty. It’s why Peter Atwater ’83, founder of Financial Insyghts and an adjunct professor of economics at William & Mary, says there’s reason to remain confident during our current circumstances.
Even though COVID-19 has had major ripple effects on the economy, among many other things, Atwater knows that panics don’t last. Not too long from now, things are likely to begin to trend upward again.
“Yes, these are scary times, but there is a logic to it. There's a reason people are panicking the way they are,” Atwater said. “In those moments of hopelessness, rather than doing silly things, those are the moments to realize that this is almost certain to be temporary. Once confidence has bottomed, optimism will return.”
Atwater, who recently wrote about the topic, is an expert in confidence-driven decision-making in real time, and he spoke to W&M News to discuss decision-making by the American public and policymakers in response to COVID-19. The interview has been edited for length and clarity.
You developed a tool called a Confidence Quadrant that you use with students and clients to map perceptions of certainty and control over time. What quadrant is the country in now?
We are in the lower left-hand quadrant. That is our discomfort zone. We don't perceive certainty or control. The lowest left-hand corner is what I call the trauma zone. We are approaching that. That's where we feel powerless and extremely vulnerable. It's the same sensation that you feel when you are rushed to the emergency room.
I use the quadrant with the hospitals. Confidence in medical care is a really important issue for me because confident patients recover faster and better than those who aren’t confident. So, I try to work with hospitals and healthcare providers to help them to focus on ways to improve patient confidence. The period of waiting for diagnosis is where patient confidence is lowest. It's always a surprise to doctors when I tell them that even a cancer patient feels better with a terminal diagnosis than without a diagnosis at all. To the extent that you can make that process as short as possible, it’s going to have a material impact on outcomes.
What do you mean when you say we are approaching the trauma zone?
America is a cancer patient waiting for a diagnosis. So yes, this is a very debilitating time for people. With COVID-19 getting closer, we are reaching the trauma zone. People feel incredibly vulnerable, and the longer it goes on, the more lasting that sensation is likely to be.
It could still be a few months before the very worst is behind us. Once we are in the trauma zone, we are prone to setbacks and, as anyone who has recovered from a major illness or injury can attest, the beginning of the recovery is extremely slow.
Why has the stock market behaved the way it has in recent weeks?
It’s mirroring the decline in confidence more broadly. Think of the stock market as nothing more than a barometer of sentiment. In fact, two weeks ago you could see people panicking in the market at the same time they were stockpiling things at Costco. Identical mood being expressed two different ways.
How would you allay fears that this virus is going to wreck our economy?
I’m very confident that confidence will bottom soon. We can't stay in a period of uncertainty and powerlessness long. We hate this. We abhor it. And so it's one of the reasons that I think you're seeing state and local governments start to take charge of things and saying we're no longer going to wait, wondering. We're just going to start to act. Same thing with colleges and businesses.
And so those actions are a means of trying to regain confidence. And even if this is really bad, I expect that the worst of it from a confidence perspective will be in anticipation — during this waiting period. So I expect markets will bottom just as things feel most uncertain.
What this means for the economy going forward will all depend on the depth of despair. And to me that comes down to whether people view this as a shock to the system or a traumatic event. How significant do they think this vulnerability was? If that vulnerability is lasting, a recession is all but certain and then the economy will recover very, very slowly. If we can begin to look past it, that's a different story. We need to be clear in our efforts that what we're trying to tackle isn't just this event, but the perception that an outbreak could happen again.
What would your advice be to policymakers? What steps do they need to take at this point?
They need to stop focusing on the economic impact and focus entirely on the psychological impact. And there it comes down to what are they doing to make people feel safer? And in terms of safety here, it's with respect to their physical well-being. The economic impacts are secondary to how we feel about ourselves. And so the longer we focus on the economic impacts, the more attention and energy put around that, the less we are paying attention to the real cause of the problem here, which is people feel less confident, because there's this unseeable predator out there in the form of this virus.
So these seemingly irrational behaviors aren’t irrational after all, are they?
I think in very emotional times like this, people don't believe that there is logic to it. It all feels very irrational. And to me, there's nothing really irrational about this. It's really quite logical.
One of the things I know from my students is there's an interesting comfort that they talk about at the end of the semester, that the Confidence Quadrant has given them. Toward the end of the semester, I'll have students coming into class and saying, ‘Professor, I'm in the lower left quadrant today.’ And I love that, because it says to me that they know where they are. They're not anxious about it the way they would have been in the past, because they can visualize it. We've talked about that. They've been there before, and they know they can get out of it because of how they did it before.