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Avoiding Yesterday's Disaster

April 17th, 2018

It was another ordinary travel day for Jennifer Riordan. As a 43-year-old bank executive and mother of two, she was well accustomed to business travel. Like countless times before, she kissed her kids goodbye and headed to the airport to board Southwest flight 1380 bound for Philadelphia. Any pre-flight anxiety had long been dulled as her career advanced and travel requirements increased. She had taken hundreds of flights that had all landed safely -- there and back again, there and back again -- always making it home to see her family. But this flight was different. Jennifer Riordan wouldn't make it home this time. 

She was in seat 14A by the window. Moments after the flight attendants began to take drink orders there was a loud pop and the oxygen masks deployed in the cabin. One of the engines on the Southwest plane disintegrated in mid-air sending shrapnel in many directions. A piece of the engine slammed into the plane and shattered one of the 10 by 14 inch cabin windows...the window in row 14. The force pulled Jennifer half-way out the small window, and she died instantly. 

It's not uncommon for plane malfunctions to produce a tragedy leaving a sole survivor or two. It is unusual for a plane malfunction in mid-flight to claim a single life. Jennifer Riordan was in the wrong seat, at the wrong time. It was a freak accident that likely will never happen again. 

Choosing Your Own Seat

If you have ever flown Southwest, you would know that the airline has a unique boarding process. They don't assign seats. Instead, you receive a number that determines when you can board. As you walk onto the plane, you just take any open seat. This combination of  Southwests boarding process and Jennifer Riordan's freak accident provided an interesting psychological experiment. 

Just one day after the accident, my high school best friend, Justin, boarded a Southwest flight for his own business travel. Since he checked-in late, he had a high boarding number which meant that he would be one of the last on the plane. Usually, all of the window and aisle seats are taken by that time, so a high boarding number means you're stuck with a middle seat. But this time was different. 

As he boarded the plane, there were a few middle seats left, yet there was also a single, unoccupied window seat. It was 14A. 

Like everyone who boarded before him, Justin had a decision to make. Knowing that this was Jennifer Riordan's seat, I'm sure the accident flashed across his mind producing a fear response. However, his rational mind won the internal battle, determining that the freak accident was quite unlikely to happen again. After his initial hesitation, he took the row 14 window seat and quipped to the flight attendant, "So, I hear this seat really sucks." If you knew Justin, this comment wouldn't be a surprise. However, everyone laughed because he was acknowledging what everyone felt but wasn't saying out loud.

Recency Bias

Let's say 200 people boarded that plane before Justin. Why would each one of those passengers neglect to take that window seat? More specifically, why did so many high boarding number passengers take middle seats over that window seat?   

The odds of the accident claiming Jennifer Riordan's life happening again are so minuscule that it would be impossible to calculate. Not to mention the fact that every airline in the world would be taking precautions and making changes to ensure that plane malfunction doesn't happen again. 

The reason no one before Justin took Jennifer Riordan's seat is that as humans are not always very rational. We tend to overweight the importance of recent events relative to old events and believe that what has happened will continue to happen (or happen again). Recent events have a stronger emotional connection in our minds. Can you imagine hearing about the flight 1380 accident one day before you were to board a Southwest flight yourself? No matter how rare that accident might be, in the minds of those passengers, they all saw themselves in Jennifer Riordan -- just another passenger on another Southwest flight going somewhere. 

Prospect Theory

We humans also tend to make decisions based on the potential value of losses and gains where an outcome is uncertain. Even if the chance of that accident happening again is so small, the potential loss is huge -- your life. We have an innate aversion to loss because we feel the pain of losses more strongly than the pleasure of gains.  

The passengers on Justin's flight ran a quick (albeit irrational) calculation in their heads as they approached row 14. It went something like this: The risk of taking that seat is potential death, and the cost of protection is the discomfort of sitting in a middle seat -- I'll absorb the minor cost to protect against the potential loss.

Investing and Yesterday's Headlines

This irrational calculation happens in our heads all the time, possibly most frequently when it comes to investing. Whenever the stock market experiences a significant decline, many people are left traumatized and reluctant to invest. To some, the markets are a place where their uncle "lost all of his money." 

When we see our money going down in the stock market, we biologically interpret it as a threat. We tend to avoid threats that are felt most recent -- whether it's a seat on a Southwest Airlines flight or a certain type of investment that has declined in value. 

This presents an opportunity to those who don't mind sitting in the proverbial seat 14A. Those who can identify the irrational mind process that we all experience in those situations have the opportunity to enjoy the benefit of what is being irrationally avoided. You can gain from other people's protective strategy. After all, Justin was able to enjoy the comfort and view of a window seat instead of being stuck in the middle.  

Yesterday's headlines are usually the very threats that are least likely to happen again. Investing is no different. When irrational investors flee stocks because of a recent scary headline, there is opportunity for you there. Next time it happens, don't be afraid to take a seat.