Bad Experiences

To understand how we process risk, you have to know the story of Austria’s 40-year-old nuclear power plant that has never produced a single watt of energy.

Austria, like most developed countries, began pursuing the peaceful use of nuclear energy after World War II. It’s hard to overemphasize how big a deal this was. Nuclear power stood to solve one of the biggest problems of human history: Securing abundant energy untied to your country’s natural resources.

In 1972 Austria began constructing its first nuclear power plant, called Zwentendorf. It took five years to build and cost the equivalent of $2 billion.

Both major political parties supported nuclear power. But just before Zwentendorf was turned on in 1977, Austria’s energy regulator launched a public information campaign to quell a small but vocal group of anti-nuclear protestors. They wanted to highlight what they were doing to mitigate nuclear energy’s risk.

And it utterly backfired, perhaps the worst communication effort in history.

Rather than quelling people’s fears, the information campaign scared the hell out of them. What started as small protests turned into a national uproar.

Newspaper editorials published by energy regulators were the first time many Austrians wrapped their heads around what nuclear energy was, and framing the stories as “mitigating risk” called attention to how much risk there was. Town halls designed to answer people’s questions gave protesters a microphone to influence their neighbors, many of whom previously had no concerns about the power plant.

The anti-nuclear protests grew so large that in 1978 Austria held a referendum. It stated simply: We’ve built a nuclear power plant. Do you want to turn it on?

The people voted “no.”

That’s held through today. Zwentendorf has never produced a single watt of energy. It’s used as a training facility for German engineers.

What’s fascinating is that as the referendum was taking place, France, the U.K., the U.S., Italy, Germany, Switzerland, Sweden, and Spain were building and using nuclear power plants. Japan – which understood the risk of nuclear energy better than any other country – was building and using nuclear power plants.

Austria was building the same power plants as everyone else. They had the same engineers, the same risk data, and the same safety mechanisms. But while the rest of world saw nuclear energy as worth the risk, Austria found it so risky that it abandoned a $2 billion plant before it was turned on.

Which goes to show: People don’t always think about risk in an analytical way. They think about it in a cultural way.

What you think is risky is heavily influenced by the culture you live in, the generation you were born into, and the bad experiences you’ve had in life, all of which differ from one person to the next.


Marc Andreessen recently talked about what’s happening in Silicon Valley:

Investors who were in the stock market in 1929 never went back into the stock market. If you live through one of these scarring crashes, you get psychologically marked. We have an entire generation of Depression Babies – including me – in Silicon Valley who went through the 2000 dotcom crash.

But enough time has passed since the crash that kids are coming to the Valley who don’t have a memory of the crash. They were like in 4th Grade when it happened. We get in these weird conversations where we’re telling them cautionary tales of what happened in 1998, and they look at you like you’re a Grandpa.

We have a new generation of people in the Valley who say, ‘Let’s just go build things. Let’s not be held back by superstition.’

It’s not that one is good or bad. But the balance is shifting.

The last part is the most important.

We think of experience as uniquely good, because it teaches you something new. But experience backfires when it locks your thinking in a rut. Seeing the world through the lens of your own background can be dangerous when other people who also write the world’s script have totally different backgrounds.

“I have a lot of muscle memory that resulted from the Internet bubble.” Tren Griffin recently wrote. “The experience still impacts the way I think and act.”

Is that a good thing? Honestly, I don’t know.

I wasn’t an investor in 2000. So people like Tren are better at spotting bubbles than I am. On the other hand, Andreessen says tech stocks have been consistently undervalued since 2003, because investors who lived through the crash continued to see everything through the lens of excess and folly, leading them to shun legitimate opportunities. When is stuck in your head, Facebook and Netflix run right past you.

Tren understands something (many things) I don’t, and I might be able to view markets in a way his experiences prevent. Ten years from now an investor who was too young to experience the 2008 crash will say the same thing about me.

The point is that your concept of risk has as much to do with what you’ve experienced individually as it does the rules and formulas that everyone can learn collectively. There’s a cultural element of risk that can be more persuasive than the analytical element.

Inflation averaged about 2% a year during the last decade, when Millennials were coming of age. It averaged about 8% a year in the late ‘70s and early ‘80s, when baby boomers were coming of age. So which generation do you think was more attracted to gold and inflation hedges in recent years? And which generation’s experience served them better in the last 10 years? Baby boomers, who prepared for hyperinflation that never came, or Millennials, who were blind to a risk that could have materialized?

These are tough questions.


Two economists once measured whether living through a deep recession early in your life influenced how you invested later on.

It did. Living through a crash, or high inflation, or a deep recession, when you were young made you far more conservative later in life compared to those who didn’t, and vice versa.

They wrote: “Our findings suggest that individual investors’ willingness to bear financial risk depends on personal history.”

Which is one of the most important concepts in investing. And one you won’t find in any finance formula. And one we don’t take seriously enough.