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Fear and Greed


Explanations > Emotions > Fear and Greed

Commonalities | Differences | Industrial revolution | Bubbles | Corruption | Confidence tricks | So what


Fear and greed are often found together in situations where people are being influenced in negative ways. In fact Einstein said 'There are three great forces in the world: stupidity, fear and greed.' Stupidity (at least in hindsight) leads people into situations where fear and greed are the roots of their downfall.


Fear and greed are not the same, but they work in combination because they have several factors in common, including:

  • Negative emotions and values.
  • Largely self-focused rather than having concern for others.
  • Both can be affected by social influencers such as the need for status.
  • They are about external factors (fearing or seeking something outside the person).
  • They both involve strongly felt emotions that cloud rational thought.
  • There is a powerful effect from both fear and greed on how people behave (including beyond their normal values).
  • Both are about the future.

Being similar, particularly in the inward focus that leads to immoral action it seems likely that they will appeal to those who are more corruptible. Yet many of us who would normally consider ourselves bravely moral will, when the situation arises, fall prey to both of these emotions.


Fear and greed are also different, which helps explain how they act together or in sequence to drive how we act under their influence.

  • Fear is a response to threat. Greed is a response to opportunity.
  • Fear seeks to preserve the self. Greed seeks to expand the self (via owned acquisitions).
  • Fear leads to avoiding. Greed leads to attraction.
  • When fear and greed compete, fear often wins.

This avoidance/attraction difference can create a push-pull situation where fear and greed act together in driving a single set of actions. This is one reason why they are such a powerful combination.

Industrial revolution

A pattern of greed and fear can be seen in the way industries evolve. It starts with an innovation, such as the introduction of steam power at the start of the industrial revolution. While some view this with curiosity, others realize that there is huge opportunity here to make a lot of money. Driven by greed as much as any other motivator, they work hard to bring their dreams to fruition and make their fortunes.

A problem with this is that along the way, they change things not just for the better. Their innovations also lead to other people losing their livelihoods, for example as machines churned out goods that previously only skilled artisans could produce. When they see this, the artisans naturally fear for their future and look for ways to survive, for example by 'going upmarket' or more directly fighting back (as in the original Luddite rebellion).

This pattern has repeated often, as innovations shake up market segments and there are clear winners and losers. Typewriter manufacturers, for example, soon went out of business when the personal computer arrived, just as handwriting clerks were displaced by typewriters. In each case, fortunes were made and lost as greed drove the innovators and fear was a major force in the ranks of those negatively affected by the change.


Fear and greed appear in financial bubbles, such as in the stock market and in housing, where prices go up sharply as people compete to buy a relatively scarce resource.

In a normal purchase situation, if you buy something today it is worth about the same tomorrow, yet when prices are rapidly going up, it seems that if you buy them now, you are guaranteed a quick return when you sell them in the short to medium term. Based on the assumption that tomorrow will be much like yesterday, people become greedy as they seek the easy win of 'something for nothing'. They also fear being left behind as prices rise beyond their financial reach. Bubbles are also driven by anticipated regret as we feel in the present a sense of the the future regret of not buying now.

Of course the smart money gets out before the average investor and when the price eventually turns down, people find it hard to sell even a modest holding and become desperate as prices sink fast. And so they sell at an even lower price, driving down the price further in a reversal of the upward swing. Even worse, they may feel that the price must go up again sometime and so buy even more, ruining themselves in the vain hope of ultimate redemption.


Greed corrupts in a very similar way to how power corrupts. A person sees something that will get them something they want with relatively little effort. They focus closely on this, and in doing so focus less on the happiness of others. This single-mindedness leads to a greedy determination that steps outside common social values. They may even step beyond what is legal, although they always justify their actions to themselves.

Once people have acted corruptly, they fear being caught and so act to hide their wrong-doings, often through further corrupt practices. In this way, corruption draws people into a downward spiral of greed and fear, much as bubble draws people in to buying more and more.

Fear also corrodes, sapping the will and draining the desire to fight for what is right. In doing so those who are constrained by fear feel they have betrayed themselves and others and their self-esteem also spirals downward. 

Confidence tricks

Confidence tricksters make full use of fear and greed. Usually they start with greed, tempting you in with what seems like a 'dead cert' easy gain. And in fact they may let you gain small amounts to prove that the system works. As they hook you in and your greed takes hold, they may also hint that the system is not strictly legal, though of course there is no chance of being caught. This is used later in the 'blow off' when they leave. You are then left duped and believing that going to the police is not an option as it would implicate you as well.

A variant on this is pyramid selling, where the money from new investors is used to pay off existing investors, thus sustaining the illusion of a working system.

So what?

Warren Buffet made a very pertinent comment when he said 'Be fearful when people are greedy, and greedy when they are fearful'. When people are greedy, bubbles happen. When they are fearful, they sell at low prices. Understanding this can lead to a wiser investment strategy.

Watch your own emotions around fear and greed and how they may interact. Beware of being drawn into bubbles or spirals of corruption and beware of those who offer a 'sure thing' (especially really likeable people). If something seems too good to be true, it often is.

In changing minds you may be able to tap fear and greed. This typically starts with creating fear to destabilize the person, then offering a 'sure thing' that sucks them in. Beware of the corrupting influence of greed and that once a person has stepped over the line they may have less qualms about taking revenge on you. In particular if you are seeking a longer-term relationship, fear and greed should be avoided altogether.

See also

Fear, Greed, Confidence tricks


Shefrin, H. (2002). Beyond Greed and Fear: Understanding behavioral finance and the psychology of investing. Oxford University Press


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