How Temporal Construal Affects Our Judgment Of The Future

Our feelings lead us to make misjudgments related to time. Things that happen nearer in time are more likely to be present in more specific details. Short-term events that happen in our daily lives often have the preference over long-term events. This is understandable because if you don’t handle the present, your future suffers as a result. However, as with everything in life, it’s important to strike a balance. Short-term pain can lead to long-term gain. I can say that experiencing difficulties in life can set you up to deal better with them in the future, because life will never be without setbacks.

I often speak about investing and we will find out together how short-term events such as earnings that are higher or lower than expected affect decisions without considering the long-term effect.

Prospects are extended into the future The longer it takes for an event to occur, the more general and abstract we perceive the future. The uncertainty of what may happen in a long time leads to an unclear image. Whereas the short-term is much more vivid and easier to see in detail. This phenomenon is called the Temporal Construal.

The perception of how short-term events affect the long-term prospects of companies explains why quarterly earnings reports lead to losing or gaining the trust of investors. The stock market is forward-looking and when the future outlook of a company and/or industry is worsening, investors are more likely to pull back. Whereas when there is a lot of positivity and a bright future ahead, the shares of companies soar.

How we feel about something now affects how we perceive it in the long-term. This is called Affect which results in the effect that companies with good results are often favored with bright forecasts. The positive news can cloud the future judgment of investors.

I had to learn to hold myself back when experiencing the feeling of missing out while investing. There is always a moment to invest when it suits you instead of investing because of external factors. It’s important to exercise control over your investments because otherwise, you won’t have a sustainable plan. You’ll be chasing stocks after good news, and trading on a whim instead of investing in companies you thoroughly researched. More likely than not, you’ll lose more money than you make if you utilize this approach.

Temporal Construal tricks us into hasty decisions Our minds are wired to give more attention to the short term compared to the longer term. If we only look at our own behaviors such as playing a lottery with a minuscule probability of winning and an almost certainty of losing money. Whereas investing the same amount of money in an index fund every month to compound your money over time is more probable to happen but less preferred.

The instant gratification of ways to spend this money influences the preference for playing lotteries. We don’t even know how this year will end, and retirement is further on the line if I speak for myself. However, your financial future won’t take care of itself if you don’t plan. Therefore, it’s important to think about which way to go;

• Searching for instant gratification, which isn’t attainable for most of us.
• Reaping your rewards through patience. The latter is possible for many of us who can put aside money every month, keep the long game in mind, and know that instant gratification is tempting but not always the best option.

Takeaway Our mind is wired to choose short-term information to forecast the future. If something is good now, you are more likely to think you’ll keep enjoying it. This is also the case with investing because short-term events such as earning reports are used to estimate the results in a year. However, there are many unknowns, and this year really shows that. Knowing how we construct time affects us can help while making decisions. We are all fallible to short-term gratification from time to time, but investing is easier to plan for the long-term. The caveat is that you have to be patient to reach your goal. I can’t say it better than Aristotle.

Patience is bitter but its fruit is sweet

Thank you for reading and I wish you a nice day.

This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions.