When Expectations Don't Match Reality

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Expectations are very tricky because they're almost always wrong. But our expectations drive our behavior anyway.

Our view of the future is the fundamental basis for how we act today. Since our expectations about the future are regularly based on our recent experience, we act as if the next week, month, and year will be just like the last one.

We are programmed that way. In fact it is a genetic trait of humans to base our view of the future (our expectations) on the past; we have very little else to base it on. But we have very short-term memories, so our natural inclination is to define the past as the very recent past.

Unless we train ourselves differently, we think that what just happened will continue into the foreseeable future, and we will act based on that expectation.

When every house you buy is worth 10% more six months later, you start to expect that to continue. If you expect home values to rise 10% every six months, then you buy a bigger house or use your home equity to buy a boat.

Then one day something changes.

When behavior reaches extremes it does not take much to surprise us. After a while, we adjust our expectations and begin to think that how things are right now will continue into the foreseeable future. And we start to behave differently based on those expectations.

Of course, that behavior will eventually reach extremes as well. These boom-and-bust cycles seem to overshoot what seems rational in hindsight. Looking back, it's almost always painfully obvious that we allowed our expectations to get out of whack.

The solution is simple, but it's not easy to execute. We need to train ourselves to lengthen our definition of the past.

That's why history is so important. It has been said that the three most important words in the English language are remember, remember, remember.

So we need to remember those times in our lives when things changed. Think of the times when you expected things to happen a certain way based on your recent experience. You then changed your behavior to reflect those expectations. Then, just at the point where that behavior reached an extreme, something changed and you found yourself wishing you had behaved differently.

I imagine we won't have to look too far into the past to see examples. The concern I have is that most of us have already forgotten the very things that would help.



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The article When Expectations Don't Match Reality originally appeared on Fool.com.


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