The market meltdowns of last few years spawned an interest in the research and theoretical field of Behavioral Finance that simply didn’t exist before. Books like THINK TWICE, Harnessing the Power of Counter-Intuition garner great attention and great crowds for Michael Mauboussin the author. Calls to our office for talks, interviews or articles on “Irrationality” likewise keep on coming.

A void still exists though. While the observations of Behavioral Economics prove that “smart” isn’t enough, those same observations don’t go far enough to explain really why we tend to make bad choices with probability or what we can really do about it. From my point of view, we need to understand why we do what we do before we can change it.

And to that end, there still exists an old idea about our brain. In fact, exists isn’t the word for it. Simply put the out-dated thinking dictates that feelings and emotions emanate from our old brain and remain inferior to our cognitive, logical reasoning and analytical capabilities. In psychology schools you will hear this referred to as cleverly as System 1 (cold rational) or System 2 (hot emotional). You will also hear reflective and reactive as synonyms for the supposed systems 1 and 2.

But this frankly is proving to be a mis-understanding or put another way, simply another grossly popular bad assumption. Research shows we can’t make decisions without having feelings associated with those decisions. In trading the feeling that gets talked about all the time is confidence. Confidence, or alternatively conviction, applies to decisions about model factors, decisions to invest (confidence in viewpoint on why a stock will go up) and just about every other decision that has overt risk in it.

What is confidence or conviction? Is it a thought? Think about it – it is time to ReThink Thinking®.

Lisa Feldman Barrett of Boston College argues cogently for the idea of one integrated system. She has lots of support in the literature.

Our best thinking will make all of the feelings and emotions that surrounding our thoughts explicit – and will in turn then give us a qualitative overlay on our quantitative risk analyses that will create much more fully informed choices about risk.