March 01, 2015

Intellectual Imposters, Greece, and Emotional ETFs

As a psychiatrist I’ve worked at the fringes of human experience, and I've come to believe that it’s in those edge cases that we sometimes learn the most about ourselves.

Imagine awakening from a concussion to find that your spouse has been replaced by an imposter.  Besides a minor headache you have no other problems - just that one.  A stranger is pretending to be your spouse.  She looks, talks, and lives exactly like your spouse, but you know - deep down - she’s not your spouse.  Of course it doesn’t make sense intellectually that your spouse was replaced by a double, but you absolutely feel that way.  

Capgras syndrome is the name for this disorder, and it is characterized by a delusional belief that a loved one has been replaced by an imposter.  The feelings of strangeness win out over the intellectual understanding that this person looks and acts identically to your spouse.

For those with Capgras Syndrome, a break in brain circuitry disconnects the facial recognition area from the limbic system.   The face of a loved one usually elicits an emotional response - joy, excitement, love.  But after a blow to the head (or other neurological issue), this feeling is no longer experienced.  Patients see their spouse with their eyes, but they don’t feel anything.  In fact, while the skin of a normal person shows evidence of physiological arousal (slight sweating) when the image of a loved one is viewed, the skin conductance of those with Capgras’ Syndrome stays flatlined.  

Because Capgras’ sufferers see the exact person (“yes, she looks just like my wife”) but don’t feel recognition (“I know she’s not my wife”), a battle ensues between reason and emotion in the brain.  You might expect them to get on with life, living with the intellectual assurance that this person clearly must be their spouse.  When everyone around them insists “this is your spouse, not a fake!” – that should hold some weight.  But the brain accepts emotional input as superior to visual/intellectual input, and the patient remains doubting. 

Because the Capgras’ patient feels no connection with the loved one, the only rational explanation (to the brain) is that she must be an imposter, a double.  And the mind tends to attribute sinister motives to the imposter: “What did she do to my real wife?!” which can lead to violent behavior.  An elaborate story is fabricated out of a simple disconnect.

But Capgras patients are not always upset by the imposters.  One man with Capgras reportedly confessed to his priest that he had repeatedly been unfaithful to his wife – he had been sleeping with his wife’s doubles.

As investors we are often confronted with what we know to be true intellectually versus what we feel emotionally.  “I know this market is overvalued on a historical P/E basis, but I feel like it will still go up.” Even as experienced investors who know we should rely on the intellectual assessments, the pull of emotional reasoning - reinforced by the media - is strong.  As you can see in our ETF model below, the best investing opportunities come when we trade against both the emotions and the intellect of the media.  This week’s newsletter examines the battle of reason and emotion, how that plays out in events such as a potential Greek default, and the cycles of belief that drive ETF prices.