“Instincts are the genetic memory of the problems our ancestors faced.” - Luca Dellanna
Year-to-date market volatility—driven in part by US policy shifts—has naturally led to defensive posturing and a heightened focus on downside protection. While there are plenty of rational responses for worried clients (stick to the plan, maintain diversification, etc.), we invite you to sit on their side of the table and view the situation through a non-ergodic lens.
We last formally discussed ergodicity a few years ago, but it is a framework we continually use to build resilient client solutions—one that’s also gaining traction in broader market research.1 The concept is mathematically subtle yet deeply intuitive: your life (and wealth) are path-dependent, and survival matters more than overoptimized utility decisions. A client’s risk aversion or fears are not “irrational”—they simply reflect the non-ergodic reality of their situation.
Even if the term ergodicity is unfamiliar, people seem to grasp its implications instinctively. A recent experiment2 demonstrated this brilliantly: participants making decisions between gambles under time pressure behaved more cautiously—naturally aligning with growth-rate optimal strategies. Interestingly, those given unlimited time to “do the math” wound up underperforming by optimizing for expected wealth rather than sustainable growth. Our instincts, it seems, can help us navigate uncertainty.
As financial practitioners, it’s easy to default to facts, figures and rationalized explanations. But at the end of the day, this is a people business, with genuine real-life consequences. There’s no manual for weathering different client situations and market environments, as “experience and perception happen at the individual level, and therefore your job is to improve that rather than improve things at the average level.”3 Trust your gut.
Important Disclosures & Definitions
Ergodicity: in simplified terms, the average outcome of a group over a longer period is the same as the average outcome of an individual over a relatively short period. For example, the average outcome of 100 people flipping a coin once is the same as one person flipping a coin 100 times.
1 Mauboussin, M. and Callahan, D. (February 19, 2025). Probabilities and Payoffs, The Practicalities and Psychology of Expected Value. Counterpoint Global Insights, Morgan Stanley Investment Management.
2 Vanhoyweghen, A. (February 26, 2025). The Brussels Experiment. Ergodicity Economics, London Mathematical Laboratory.
3 Sutherland, R. (2023). A Creative Springboard to a Better Kind of Economics [Video]. ErgodicityTV, London Mathematical Laboratory. YouTube.
