Peter Atwater on Consumers’ Decision-Making Process
Nov 22, 2023
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Peter Atwater, president of Financial Insyghts and an adjunct professor, discusses the correlation between car design and consumer sentiment, the impact of societal changes and political disenfranchisement, and the role of confidence in decision making. They also explore the influence of sentiment and mood on the market, meme stocks, and the importance of understanding others' thoughts and feelings in finance.
Confidence influences consumer decision-making, leading to impulsive choices and a focus on concrete options.
Investor sentiment shifts from futuristic technologies to established companies during periods of declining confidence.
Market movements often reflect short-term sentiment rather than long-term value due to the impulsive and emotional nature of crowds.
Deep dives
Preference for Me Here Now and Concrete Choices
When confidence is low, people tend to prioritize immediate concerns and personal needs. This leads to impulsive decision-making and a focus on tangible, concrete options. This is reflected in our preferences for instant gratification and convenient, on-demand services like Netflix, Amazon, and fast food delivery.
Shift from Futuristic Investing to Established Companies
In early 2021, there was a surge in enthusiasm for futuristic technologies like EVs and space travel, leading to investment in startups and speculative assets. However, as confidence has declined, there has been a shift towards established companies such as Apple, Google, and Amazon, indicating a preference for stability, cash flow, and familiar brands.
The Market as a Voting Machine Reflecting Sentiment
The market's behavior is influenced by the sentiment of the crowd, which tends to be impulsive and emotional. It lacks the ability for deep analysis and rational decision-making. As a result, market movements often reflect short-term sentiment rather than long-term value. This can lead to overreaction and overshooting in both positive and negative directions.
The importance of confidence in consumer behavior
Confidence plays a crucial role in consumer behavior and economic decision-making. When consumer confidence is low, people are less likely to spend money and engage in economic activity. The recent rescue plan aimed at boosting the economy did little to improve confidence, particularly for those at the bottom. While the stimulus money provided temporary relief for basic survival needs, it did not address the underlying uncertainty and powerlessness felt by many. This lack of confidence can have a significant impact on the economy and the overall mood of the nation.
The impact of January 6th attack on national confidence
The January 6th attack on the Capitol had a profound impact on the confidence of the nation. It revealed a sense of powerlessness and uncertainty among a large group of people who felt defeated and needed to take action. This event was unusual because, unlike previous times of defeat, this group did not accept the outcome and sought to stop the transition of power. The attack highlighted the different reactions people have in such moments, including flight, fight, freeze, and a sense of resignation or 'eff it.' The incident underscored the deep divide and loss of confidence in the political landscape.
Bloomberg Radio host Barry Ritholtz speaks with Peter Atwater, president of Financial Insyghts and an adjunct professor at William & Mary and the University of Delaware. He studies the impact of changing confidence on consumer decision-making and advises investors, businesses and policymakers. He coined the term “K-shaped recovery" to describe the pandemic's effects on the economy. Atwater previously ran JPMorgan’s asset-backed securities business and served in executive roles at First USA, Bank One and Juniper Financial.
