Behavioral Finance

Metaphors We Invest By

Does this sentence strike you as odd?: The markets are up today! Probably not.

Does this sentence strike you as odd?: The markets are up today!

Probably not. It's a very ordinary way to speak. But if you really consider it, this sentence is a truly weird thing. Consider: by using a reference to the position of a physical object in space, I've expressed an outcome (and my feelings toward it) on an object that doesn't tangibly exist. Saying the market is "up" is a metaphor. Nothing is actually, physically moving upward. It's just an expression to say the value of the markets is larger than it was.

Maybe all that strikes you as mundane, but simple sentences like that one can tell us a lot. In fact, an understanding of linguistic basics can help you be a better investor.

Language is an evolutionary adaptation—a means by which we can communicate with each other. Just think what a tremendous advantage it was tens of thousands of years ago for humans in the wild who could transfer ideas and thoughts and commands into another person's head by simply making sounds! Those poor wildebeests didn't stand a chance in the long run.

Because language is innate, all humans (no matter the dialect) actually adhere to very consistent, universal rules. One of those rules is that we pretty much always talk in metaphors. Most people think of metaphors as only for poetics and high art. Actually, just about every single word and every single sentence is metaphorical. Think of it this way: a word itself is always a representation for something else. Even a letter is a symbol! There's no escaping it! This makes it a lot harder to be literal than most think.

Our brains weren't made to understand investing or science or even storylines from last week's episode of "Lost." Brains were originally made to survive in the wild. Humans don't implicitly understand concepts like inflation, but they do understand emotions, predators, hunger, and all sorts of other primal, instinctual feelings. Metaphors take a concept or event or thing and allow us to make sense of it in human terms, for our own specific brains, consistent with our evolutionary wired goals, motivations, and characteristics.

So metaphor is an expression of how we experience the world—and it's most useful in everyday life when it puts into context something we don't understand with something we do understand. Thus, metaphors are a great indicator about investor sentiment because they reveal how people understand (or misunderstand) more complex topics.

As an example, let's look at inflation and how people tend to describe it metaphorically.

  • Inflation has attacked the foundation of our economy.
  • The Fed's biggest enemy is inflation.
  • Inflation is robbing me of my savings.
  • Inflation is lowering our standard of living.
  • We need to combat inflation.
  • Inflation is taking its toll at the checkout counter and the gas pump.
  • Buying gold is the best way of dealing with inflation.

We often try to describe something conceptual, like inflation, as literally human in order to understand it. This is called personification. Here, inflation isn't just personified as human, it's an adversary. And this is a common way of thinking about inflation.

The words we use alone betray our attitudes and fears toward inflation—we think of it as something that can attack us, hurt us, rob us. Viewing something as abstract as inflation in human terms has an explanatory power that makes sense to most people. When we are experiencing the effects of something due to complex economic or political factors that few truly understand, the "inflation is an adversary" metaphor allows the mind to believe it's receiving a coherent account of what is happening.

But a good economist knows inflation isn't an adversary at all. In fact, a low, but positive, level of inflation is widely considered to be a necessary part of a healthy, growing economy. It's only high inflation that harms economies. And, what if inflation were to go negative (deflation)? Actually, that's where it can really get bad! Yet, because the system of metaphors we use refer to inflation as an "adversary", it's hard for most people to see that. In this way, metaphors can both reveal and influence people's beliefs.

A savvy investor can analyze how bad metaphors influence widely held, incorrect attitudes about the markets, and use those insights to invest better.


• Lakoff, George and Mark Johnson. Metaphors We Live By. Chicago: University of Chicago Press, 1979.
• Pinker, Stephen. The Language Instinct. New York: HarperCollins Publishers, 2000.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.