Fear and loathing in the City

A version of the following article appeared in Square Mile magazine in November.

Robert Kelsey, author of the bestselling What’s Stopping You? argues that the City’s biggest problem isn’t greed, it’s fear

I was a terrible City banker. My problem: fear. Fear of failure in fact. It wasn’t that I was unable to take the risks that are part-and-parcel of an investment banker’s role. Fear doesn’t work like that. Indeed, I could take ludicrous risks in some of the most volatile trading environments on the planet (Russian oil comes to mind, or the US energy market). It was my judgement of risk that was undermined by my fears. My ability to sort good fear – required for diligence and analysis – from bad fear, which is the zone lurking within us all that can lead to either paralysis or, as we shall see, nonsensical leaps.

Of course, I got out. I left the City to become an entrepreneur. I used my City knowledge to start a financial PR agency, although also started researching the fears and insecurities that had dogged my banking career. That said, I was hardly alone. Fear stalks the corridors of the great financial institutions. In fact, I think fear of failure one of the City’s key problems, and a far larger contributor than greed to the 2008 crash.

Fear of failure is a recognised mental condition. It even has a name: atychiphobia. In reality, the condition is driven – not by fear of actual failure – but by the fear of public humiliation resulting from failure. The derision of our peers, it turns out, is our biggest driver for fear-based responses – and certainly a major factor when it comes to both everyday and extraordinary behaviour in the City.

Indeed, fear can occupy both ends of the behavioural spectrum. At one end is the obvious reaction to fear – avoidance. We are expected to act, which triggers our fears and results in us doing the opposite. We flee, which – in the City – means hesitating until the opportunity is lost. Perhaps we look for – and inevitably find – that one tiny flaw that offers us the justification we need to walk away. Procrastination is a classic symptom here, in which we find excuse upon excuse to avoid taking action. Nothing’s been lost, for which we’re grateful. But, significantly, nothing’s been gained, which is hardly a sustainable strategy for long-term success in the City.

Given the pressures, inaction is therefore only the second most common response to fear in the City – not least because nothing-gained scenarios will quickly lead to the public humiliation we were so keen to avoid. On a trading floor, or in the smart suites full of deal-doing investment bankers, avoidance is often not an option. Deals have to be done. And that leads to the second and more dangerous response to fear of failure – taking extreme, poorly-calculated, risks.

This needs explaining, which means going back to the developmental roots of fear of failure. In nearly all cases, our fears are based on early-life conditioning. Fearful events have triggered what the psychologists call “fear conditioning”. In neurology, this happens when part of the brain known as the limbic system is triggered by fear. It’s the amygdala doing the work here – a small almond shape element within the limbic system that signals emergencies to the rest of the brain. Indeed, the amygdala’s response explains why our fears usually arrive via those nerve-surges through the body (known as “neural hijackings” by neurologists).

Yet the amygdala’s response is only half the story. Attached to it is a horseshoe-shaped element called the hippocampus. This deals with memories – crucially deciding what we remember, as well as what we forget. So when a fearful event occurs – perhaps a large dog running towards us barking – the amygdala presses the alarm, setting off the classic fear-based reactions (racing heart, adrenalin, the shakes etc), which causes the hippocampus to take note and make a deeper impression on our memory.

An impression, what’s more, that works in reverse – with the hippocampus triggering the amygdala when reminded of the fearful event later on. So if a dog attack generated our original fear, the sight or sound of a similar dog can trigger the same fear response, no matter that the dog’s friendly and tethered – hence fear conditioning.

Of course, fear of dogs is no reason to avoid sensible risk taking in the City. But fear of public humiliation is, which is another childhood event that can trigger our emotions to the extent that the amygdala and hippocampus react. Bawled out in public as a young child (perhaps for not making the loo in time), or maybe laughed at by our peers for forgetting our satchel, and the amygdala and hippocampus conspire to generate the same fear conditioning – triggering a fear response when even tangentially reminded of that initial humiliation in later life.

Extraordinary as it seems, we’re in fact dealing with a mild case of post-traumatic stress disorder (PTSD). The godfather of PTSD is a man called Dennis Charney of Yale University. Sure, he studied war veterans, but he concluded that the traumas that can generate fear conditioning can occur when we’re very young – perhaps when a baby or even in the womb (meaning we may not remember the actual event, just the fear response) – and that instances of public humiliation can equally generate a fearful reaction.

Yet we’ve still not explained why fearful people take extreme risks. Crucially, they’re masking their fear response – making extreme risk-taking no more than a well-disguised version of avoidance. From Yale we travel to Stanford University – and 1960s experiments by psychologist John Atkinson. He set children a series of reward-based tasks and noticed they divided into two groups: those that were focused on winning the reward (he called them “achievement motivated”) and those focused on avoiding the humiliation of failure (a group he claimed had “fear of failure” – in fact, coining the term).

One task was a game of hoop-the-peg, with greater rewards on offer the further back the children stood. Being focused on the reward, the achievement-motivated kids stood a challenging but realistic distance from the peg – adding concentration if they failed the first time. The fear of failure kids, meanwhile, focused not on the reward but on the potential humiliation of failing. They stood either right on top of the peg or – extraordinarily – so far back that failure was almost certain. Of course, such a distance meant everyone failed, which masked their fear of failure – and (while not expecting a reward) they expected to receive some kudos for being seen as a “trier” at such a distance.

You guessed it: at both ends of the risk spectrum fear of failure is a major motivator for City behaviour. Of course, the occasional child managed to hoop the distant peg – just as plenty of high-risk City gambits work out. But this leads to further problematic behaviour: hubris – not least to mask the even-deeper insecurities generated from a success that, deep down, we think undeserved.

Certainly, fear of failure explains all those rogue trader scandals, nearly all of which start with the trader trying to cover up modest losses that – if declared – would have resulted, not in disaster, but in humiliation. Yet I think it explains a lot more besides. In fact, I think fear of failure runs right through the City, and not just at the execution level.

As a banker, I can remember helping structure debt-“reducing” deals for Enron. Obviously, they were hideously complex – as illustrated by those box-and-arrow diagrams that scrawled across meeting-room whiteboards. They were the sorts of deal you thought you understood, but were grateful not to have to explain. Certainly, I struggled with their complexity although – of course – did a fair impression of being fully up-to-speed.

Yet I wasn’t the only one masking my ignorance. While cooking them up in a meeting room, we’d win the occasional visit from a C-suite banker. Cheerfully, we’d run him through the deal – rapidly charging off into the land of options on swaps for fat-tails on price-hedges.

“Sounds great,” he’d say. “Well done!” before quickly excusing himself. Of course, he hadn’t a clue, although – when it came to Enron – neither had we. Meanwhile, everyone had masked their fear of humiliation, and the City of London had taken another small step towards the edge.


The second edition of What’s Stopping You? Why smart people don’t always reach their potential and how you can by Robert Kelsey is now available

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