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Good Question: What Is Consumer Confidence Based On?

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MINNEAPOLIS (WCCO) — “Consumer confidence.” It’s a term we’ve no doubt heard thrown around in the last few weeks.

While economists have several theories about exactly why confidence is built or destroyed, can it ever be blamed on anything short of emotion?

Ups and downs, highs and lows — the market graph mimics the way you may have felt the day your first child was born. But, is the doom and gloom really the result of a sound, scientific analysis?

To find out if the fear is justified, WCCO-TV went to Dr. Anne McCarthy, the dean of the Hamline School of Business.

McCarthy said from an economic standpoint, she doesn’t think there’s reason for impulse.

“People who pay less attention to the gyrations in the market and the DOW are better off in the long run in terms of their return on investment,” McCarthy said.

For some, it may be easier said than done when the fear comes down to providing adequately for your family. Fear is in fact one of the most motivating of all emotions.

Dr. Michael Harvey of Eagan’s Argosy University is an expert in neuro-psychology and economic decision making. He said a lot of people’s decisions are based on emotions and evaluating risks.

“All of our decisions are based in emotions [The part of your brain used in decision making] is called the orbital frontal cortex. It’s where we regulate our moods and evaluate risk, so our emotional systems are tied right to the same area where we’re evaluating risk,” Harvey said.

Harvey said this strong tie to emotions is why the sell-off makes sense. As for how to overcome extreme emotional decision making, Harvey said you should try to avoid temptation and be aware of your brain’s natural tendencies.

“For short-term thinking, people really, if they’re going to be good at it, have to detach from their emotions and evaluate risk in a cool way,” Harvey said.

Dr. Harvey said another reason the anxiety spreads is because it’s literally contagious.

He said the concept of “mob mentality” is also born within the folds of our brains. According to science, we are made to think of ourselves as social beings, and the natural tendency is to follow the group.

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