Bitcoin’s rise reflects America’s decline

Cryptocurrencies have a place in a new world order where the dollar has less of a starring role

Rana Foroohar

    © Matt Kenyon

A little over 100 years ago, there was a bubble asset that rose and fell wildly over the course of a decade. 

People who held it would have lost 100 per cent of their money five different times. 

They would have, at various points, made huge fortunes, or seen the value of their asset destroyed by hyperinflation.

The asset I’m referring to is gold priced in Weimar marks. If this reminds you of bitcoin, you are not alone. 

In his newsletter Tree Rings, analyst Luke Gromen looked at the startling similarities in the volatility of gold in Weimar Germany and bitcoin today. 

His conclusion? 

Bitcoin isn’t so much a bubble as “the last functioning fire alarm” warning us of some very big geopolitical changes ahead.

I agree. Central bankers have over the past 10 years (or the last few decades, depending on where you put the marker) quashed price discovery in markets with low interest rates and quantitative easing. Whether you see this as a welcome smoothing of the business cycle or a dysfunctional enabling of debt-ridden businesses, the upshot is that it’s now very difficult to get a sense of the health of individual companies or certainly the real economy as a whole from asset prices.

The rise in popularity of highly volatile cryptocurrencies such as bitcoin could simply be seen as a speculative sign of this US Federal Reserve-enabled froth. But it might better be interpreted as an early signal of a new world order in which the US and the dollar will play a less important role.

The past four years of Donald Trump’s presidency and his toxic politics have taken a toll on the world’s trust in America. That has also diminished trust in some quarters about the dollar’s stability as the global reserve currency. This feeling reached an apex during the January 6 attack on the US Capitol building. 

As financial policy analyst Karen Petrou put it in a recent note to clients: “There are many casualties of this quasi-coup, but the US dollar may well be among them. It’s no more immortal than any other category-killer brand.”

Trump certainly devalued Brand USA. But he is also a symptom of longer-term economic problems in the US — problems which have in recent years been papered over by low rates and monetary policy, which kept asset prices high but also encouraged debt and leverage.

Bitcoin’s rise reflects the belief in some parts of the investor community that the US will eventually come in some ways to resemble Weimar Germany, as post-2008 financial crisis monetary policy designed to stabilise markets gives way to post-Covid monetisation of rising US debt loads. 

There are, after all, only three ways out of debt — growth, austerity, or money printing. If the US government sells so much debt that the dollar starts to lose its value, then bitcoin could conceivably be a safe haven.

Germany’s currency debasement didn’t end well. This underscores another aspect of the bitcoin boom. We have moved from a unipolar world in which the US was the pre-eminent political and economic power, to a post-neoliberal world where there is no longer a consensus in favour of free trade and unfettered capitalism. 

We will probably have two or even three poles — the US, Europe and China. China has signalled its desire to become less dependent on the US financial system, buying fewer US Treasuries and rolling out its own digital currency.

In this world, it is easy to imagine that the dollar would continue to be the main reserve currency, with the renminbi and the euro gradually becoming more important stores of value. But one can also imagine that cryptocurrencies that can easily cross borders would have some advantages over fiat money issued by governments. 

While the migration of people and goods may become more constrained, digital trade and information flows are still growing.

Crypto advocates including technology leaders such as Tesla’s Elon Musk, Facebook’s Mark Zuckerberg and Twitter’s Jack Dorsey believe that digital currencies are better suited to this more multipolar world. 

They are largely unregulated and thus less subject to political forces. In the same way that large technology platforms recently demonstrated their power by removing Trump from social media, bitcoin could conceivably float above any currency nationalism that might result from the new world order.

Will cryptocurrency become the new gold — a hedge against a changing world? Will the Big Tech consensus prove more powerful than either the Washington consensus or the Beijing consensus? Perhaps. 

But it’s also possible that sovereign states will move to regulate this existential threat. 

In the US, Treasury Secretary Janet Yellen has already raised the issue of future cryptocurrency regulation.

None of this makes me want to buy bitcoin. But I also don’t see it as a normal bubble. It was unclear at the beginning of the 20th century which of the hundreds of automakers would win the race to replace the horse and buggy. 

Now, who knows whether bitcoin, ethereum, or diem, or some yet-to-be-invented digital currency will win out long term. 

For now, the bitcoin boom may best be viewed as a canary in the coal mine.

The holiday only just began

Tourism will rebound after the pandemic

It could even improve, if properly managed

It is an unfortunate fact that the ease of throwing things into a wheelie-bag and travelling far and wide helped spread covid-19 around the world. 

The effects on leisure travel and destinations that rely on tourism will be felt for years to come. 

But just as the way we travel may improve as a result, so the chance for countries to rethink tourism industries could turn a bruised and battered industry into a better one.

The pursuit of pleasure using cultural pursuits as cover goes back to the days of the grand tourists, who trawled Europe’s artistic heritage as well as indulging in more hedonistic activities. As souvenirs they returned with paintings, sculptures and sometimes syphilis. Travel was hard and expensive. 

The earl of Salisbury spent the equivalent of nearly £500,000 today on his grand tour in the 18th century, according to mbna, a credit-card firm. 

Even 50 years ago foreign travel was a luxury pursuit. 

In 1970 a return flight from New York to London cost around $500 (equivalent to $3,500 today).

Lower fares and the rise of the internet have made holidays cheaper and easier to arrange. Airlines, hotel chains, car-hire firms and other businesses have moved online. Dedicated internet travel agents like Expedia and have emerged. 

Online peer-to-peer review sites offer a mostly honest assessment of hotels, restaurants and tourist sites. Airbnb and its competitors have created a new class of accommodation. 

The frictional costs of travel have fallen sharply.

Such is the stunning growth of tourism that the 72% decline in trips in the first ten months of 2020 on a year earlier merely took international travel back to where it was in 1990. 

Leisure travel accounts for the biggest slice but the rest contributes too. 

Business travellers stay in hotels, eat at restaurants and hire cars. 

Some visits to relatives or friends may be barely distinguishable from a holiday.

Not only are there more trips, but the world is a bigger oyster. In 1950 the top 15 destinations—with America, France, Italy and Spain the most visited—claimed 97% of tourist arrivals. 

By 2015 that share had dropped to just over half. Europe, with it historic cities, countryside and beaches, still rules, taking just over half of all international travellers. 

That is twice the share of the Asia-Pacific region, the next most popular area. Europe rakes in the most receipts, around 37% of the global total, worth some $619bn in 2019. 

France and Spain are the most popular countries for a visit. 

The top spots may not have changed, but their arrivals have. 

Chinese visits overseas have grown from just 9m trips in 1999 to 150m in 2018.

Travellers’ preference for richer countries has created large industries. Spain relied on domestic and foreign visitors for 11.8% of gdp in 2019, France 7.4% and Mexico 8.7%. 

Poorer countries lean even more on tourist dollars. America is the biggest country for travel spending, some $1.8trn in 2019, but overseas visitors have put tourism at the heart of many economies. 

In Aruba it accounts for nearly three-quarters of gdp; in most other small Caribbean islands it is also the main economic activity. Other poorer countries are less reliant overall but have vast tourist industries. 

Thailand welcomed around 10m foreign tourists in 2001. By 2019 it had grown fourfold (with a quarter of the total coming from China), bringing in 1.9trn baht ($60bn) and contributing some 18% of gdp.

The emptying of tourist trails and resorts resembling ghost towns is causing massive upheaval. unctad estimated that losses could amount to 2.8% of world output if international arrivals dropped by 66% in 2020. 

The oecd now reckons that the drop was more like 80%. 

And the expectation is that international arrivals will probably not recover to pre-covid levels until 2023.

Tourism is a resilient industry. 

But it faces a downturn like no other. 

Firms reliant on visitors may not be best placed to survive. 

According to the wtcc, around 80% of tourist businesses worldwide, from hotels to restaurants to tour guides, are small businesses. 

Large hotel chains may have the balance-sheets to weather the storm or the management skills to reconfigure their business to cater more to domestic travellers. 

Small businesses probably lack the cash to invest in equipment for contactless payments or better cleaning and hygiene to reassure returning tourists.

The uncertain path to recovery raises questions over what will remain. The unwto reckons that countries with a big share of domestic tourism—America, China and India have the largest home markets—will recover more quickly. 

Travel restrictions have kept China’s high-rollers at home, giving its fanciest hotels their best year ever. 

But even domestic tourism is far from a saviour. 

Britain and Spain, for example, reckon on a decrease in domestic tourism of 45-50% in 2020.

These problems have prompted various responses to keep businesses alive. Some countries such as France, which launched an $18bn bail-out in May, have aimed cash directly at tourist businesses. 

Others are trying to reassure tourists that their countries are safe by developing protocols and guidelines for tourism workers. Luís Araújo, president of the Portuguese National Tourism Authority, says his organisation has arranged training for 60,000 workers at restaurants, hotels and travel agents to create a safer travel experience. 

Finland and Greece are among countries with new training programmes aimed at improving the digital presence of tourist businesses.

Some parts of the tourist economy will do better than others. Travel firms have noted a rising preference for self-catering and private accommodation over hotels. Coastal and rural locations, far from crowds, will recover faster than cities. 

Cyril Ranque of Expedia notes that his customers are more inclined to drive to domestic locations but then to stay longer than before. But these trends, he believes, are “all temporary”.

Waiting for the rebound

The travel bug seems certain to outlast the virus. Its first manifestation may be “revenge tourism” as people get away after a year of lockdowns and quarantines. But some things will change for good. 

A preoccupation in previous centuries, health and hygiene will re-emerge as central to holiday planning. Guidebooks from Baedeker, a German publisher, were never reticent about warning travellers of the filth they faced in foreign climes even in the early 20th century, bemoaning the “evil sanitary reputation of Naples”. 

Destinations will continue to boast of their scenery, cuisine and beaches but safety and hygiene will become as important, says Ian Yeoman, a tourism academic at Victoria University of Wellington, New Zealand. 

This may benefit longer-established destinations, tilting visitors away from poorer countries.

Those countries will not be deliberately trying to avoid tourists, even so. Some remote places have used the hiatus to build a better online presence, says Mr Ranque. He points to other innovations to make travel less of a bother. 

Flexibility, to cope with last-minute changes of plans, will endure. 

Late or even last-minute bookings are more common. 

Josh Belkin of reports that, because people are taking more staycations and travelling by car rather than plane, they are booking hotels later, on average 13 days before a trip rather than the 20 before covid-19.

Many travel companies and airlines have introduced more flexible rebooking policies. Faced by a wave of cancellations as covid-19 took hold, Expedia introduced “one-click cancellation” to deal with all elements from flights and hotels to car hire. 

Firms that use its platform can deploy new tools to add special offers to listings to encourage last-minute bookers and manage refunds. 

Gathering real-time data on searches, and sharing them with businesses that relied on information from previous years to set prices, could also lead to a better match between supply and demand and encourage more dynamic pricing. 

In future, personalised customer data should allow travel firms to recommend holidays in a more focused way.

Covid-19 presents a “once-in-a-lifetime opportunity to move towards more sustainable and resilient models of tourism development”, says the oecd. 

“Tourism was seen as unambiguously good 20 years it’s a double-edged sword,” says Paul Flatters of the Trajectory Partnership. 

Concerns about the impact of tourism on the environment predate the pandemic. But tourism also broadens awareness of different cultures and environmental issues and helps pay for wildlife conservation, as well as providing employment and economic development.

Many destinations failed to strike a balance between tourist numbers and local sensibilities. Venetians have long protested against vast cruise ships, prompting some firms to drop the city from their itineraries. 

Venice also plans to impose a levy on all visitors from 2022. Anti-tourist slogans daubed on walls have greeted visitors to Barcelona, which has clamped down on illegal holiday letting (as have Berlin and other places in which holiday lets have replaced rental properties, forcing up prices for residents). 

Amsterdam is considering a ban on non-residents buying cannabis in its notorious coffee shops, to encourage a better class of tourist. Machu Picchu, where trails were overrun, imposed a pre-covid limit of 5,000 visitors a day. That will be cut to 675 to ensure social distancing.

Covid-19 offers the chance not only to reset tourism to reduce the numbers who spend the least but also to spread them out. Barcelona has run a campaign to encourage people to venture away from the old city. Thailand has a scheme to promote 55 less visited parts of the country. 

Concentrating on attracting fewer tourists ready to spend more is one way to promote a healthier business. And sustainability may become a more important guide to choices as awareness of climate change and the less welcome effects of tourism grow. 

Getting the right balance between economic, environmental and social benefits and costs has seen a new emphasis on sustainability. 

Mexico thinks covid-19 will help with its “Mexico Reborn Sustainable” campaign, which aims in part to create new routes that spread tourist dollars more widely and promote destinations that tap into fast-growing nature tourism.

A dynamic tourism economy depends on the availability of a variety of services, from accommodation and good services to attractions, activities and events. Whether a critical mass of services will remain everywhere is less clear. 

Less choice and competition, if businesses go bust, may mean higher prices. 

The rapid growth of tourist economies in recent years suggests they can be rebuilt swiftly. 

But for all those governments that redesign their tourism strategies to keep down crowds and protect the environment, others may compete by racing to the bottom, using deep discounts to fill hotels and planes. 

Tourist numbers will recover and continue to grow either way. 

Greater efforts to manage them carefully should make for a better experience for everyone.

US removes stumbling block to global deal on digital tax

Biden administration drops insistence on ‘safe harbour’ for companies, opening door to agreement

James Politi and Aime Williams in Washington, Chris Giles in London, Sam Fleming in Brussels and Miles Johnson in Rome 

US Treasury secretary Janet Yellen told G20 finance ministers that the US ‘is no longer advocating for safe harbour implementation’ © Reuters

US Treasury secretary Janet Yellen has told G20 finance ministers that Washington will drop a contentious part of its proposal for reform of global digital taxation rules that had been the main stumbling block to an agreement.

The move could unlock long-stalled multilateral negotiations at the OECD, which struggled to make progress after the Trump administration first insisted on the “safe harbour” measure in late 2019.

The provision would have allowed technology companies to abide by any agreement on a voluntary basis.

On Friday, Yellen said at a meeting of G20 finance ministers that the US “is no longer advocating for safe harbour implementation”, a US Treasury official told the Financial Times.

The US “will engage robustly to address both pillars of the OECD project, the tax challenges of digitisation and a robust global minimum tax”, the official said.

Italian finance minister Daniele Franco, who co-chaired the meeting, said in a press conference afterwards that the G20 aimed to reach a solution by “mid-2021”.

“There is a need to reform the current system; this has become an urgent task as we are faced with the challenges of the globalisation and digitalisation of the economy,” he said.

Another official close to the international tax talks said the US “wants a deal on both pillars [of the proposals] by July . . . the coming few weeks will be critical but the dynamic has never been that positive”.

Yellen’s break with the Trump administration stance on digital tax came a day after she also dropped Washington’s objections to new financial support for low-income countries through an allocation of special drawing rights (SDRs), the IMF’s reserve currency.

“An allocation of new special drawing rights at the IMF could enhance liquidity for low-income countries to facilitate their much-needed health and economic recovery efforts,” Yellen said in a letter to G20 finance ministers and central bank governors on Thursday. 

“We look forward to discussing potential modalities for deploying SDRs [with other G20 nations].”

The last time the IMF allocated a fresh batch of SDRs was in 2009 during the global financial crisis.

Support for the financial assistance is widespread among G20 countries, so Washington’s step could pave the way for as much as $500bn in support to be pumped into the global economy. 

However the detail has yet to be settled; the US wants advanced economies’ SDR allocations be passed on to low-income countries with greater need for financial assistance.

Kristalina Georgieva, the IMF managing director, said on Friday she was “very encouraged by the growing support” for a new SDR allocation “to boost reserves of all members in a transparent and accountable manner” and offer “an additional mechanism to enable our wealthier members to support low-income countries through on-lending part of their SDRs”. 

“We stand ready to present to our membership a robust assessment of long-term reserve needs and implementation modalities,” Georgieva said. 

The gloomy prospects for a multilateral deal on digital tax during the Trump administration led a number of countries, mainly in Europe, to introduce or consider their own levies on large technology companies, in a bid to prevent them from paying little or no tax on their sales.

Washington objected to those tax measures as unilateral and discriminatory against Silicon Valley, turning the dispute into one of the biggest sources of transatlantic economic and trade tensions.

However, despite the renewed hopes for a deal, there is still a lot to do before a new global regime can be introduced. 

Not only will an agreement have to be finalised, but in the case of the US it will have to be approved by Congress, where taxation policy changes can be highly contentious.

The Number That Blows Up The World, “Everything Bubble” Edition


We’re deluged with numbers these days, many of them huge, ominous departures from historical norms. 

But one matters more than the others. 

To understand why, let’s start with some history.

In the 1960s the US entered the expensive and divisive Vietnam War, while simultaneously creating major entitlement programs including (also very expensive) Medicare. 

In the 1970s, commodity prices, led by oil, started to rise due in part to the billions of new dollars sloshing around in the world, and in part to Middle East turmoil.

The above combined to produce rising inflation and a falling dollar, wreaking havoc in the foreign exchange markets and raising doubts about the viability of the dollar as the world’s reserve currency. 

It was a huge mess.

But the US recognized the gravity of the situation and, led by Federal Reserve chairman Paul Volker, responded aggressively by jacking up interest rates to double-digit levels. 

The Fed Funds rate hit nearly 16% in late 1979.

This spike in interest rates, not surprisingly, sent the economy into recession in 1981 and shaved about 25% from the S&P 500.

But the harsh medicine saved the patient. 

Higher interest rates attracted global investment capital to the US and squeezed inflation out of the system. 

After falling by 29% versus the world’s other major currencies in the 1970s, the dollar went back to being the world’s rock-solid reserve asset in the 1980s. 

And the economy recovered and began a long run of mostly good times that culminated in today’s epic bull market.

An empty toolbox …

The lesson? 

There is a fix for rising inflation and financial instability: higher interest rates. 

But unfortunately, we no longer have that tool. 

In the 1970s, monetary chaos notwithstanding, the US was actually in pretty good financial shape. 

The debts of governments, corporations, and individuals were all very low by today’s standards, which means higher interest rates could claim fewer over-leveraged victims while enriching savers with rising interest income.

Today the opposite is true. 

Debt is at record levels in every sector of every major country. 

“Zombie” companies and governments that can only survive with new credit are everywhere. 

Raising interest rates to 1980 levels would bankrupt pretty much everyone and bring down the curtain on today’s credit-driven world.

Luckily, inflation is nice and low, so we don’t have to resort to 1970s-style monetary policy, right? 

Well…that’s the thing. 

A growing number of credible people are starting to predict higher inflation, as industrial commodities join stocks, bonds, and real estate on upward sloping price curves. 

Here’s JP Morgan, as reported by Zero Hedge:

Having dabbled in the fields of viral epidemiology and presidential polling, JPM quant Marko Kolanovic is set to conquer yet another “cross-asset”: commodities.

Two days after Dylan Grice published an article “The Stage is Set for a Bull Market in Oil”, with various commodities around the world soaring, and the price of oil up a stunning 64% since November, today Marko Kolanovic made a bold prediction – that the world has entered a new commodity supercycle:

“It is generally agreed that over the past 100 years, there were 4 Commodity supercycles and that the last one started in 1996 . 

We believe that the last supercycle peaked in 2008 (after 12 years of expansion), bottomed in 2020 (after a 12-year contraction) and that we likely entered an upswing phase of a new commodity supercycle.”

Meanwhile, mining stock analyst Jay Taylor, who compiles an “inflation/deflation” indicator, is showing an upside breakout:

Which brings us to “The Number” promised in the title of this post. 

That would be the yield on the 10-year Treasury bond, which has taken the place of the Fed Funds rate as the indicator from which all things financial take their cue. 

It’s been rising lately, and if it moves from a 1 handle to 2 or higher, that will set lots of things in motion, including the aforementioned mass-bankruptcy. 

So let’s say a yield of 3% is the number that blows up the world.

Seen this way, the current environment is similar to 1977, a time of rising but not yet runaway inflation, in which the mood is just beginning to shift from complacency to concern. 

Not yet alarm, and certainly not yet panic. 

But those things will come unless inflation and its attendant instability are quickly reined in.

This time we’ll just have to do it – somehow – without raising interest rates or cutting government spending. 

It will be interesting to see how that goes – and how people react when whatever else we try doesn’t work.

When Do People Take Huge Risks?

As a species, we’re cautious … except when the stakes are life-altering.

Derek D. Rucker

Person skydives from prop plane / Lisa Röper

Let’s flip a coin. Heads, you lose $10. What amount do you need to win from a tail-flip in order to take the gamble?

If you’re like most people, the answer is somewhere around $20. This little experiment, popularized by economist Daniel Kahneman, demonstrates a phenomenon called loss aversion. The idea that losses loom larger than gains, documented in years of psychological and economic research, is thought to be an important component of human decision-making.

But Derek Rucker, a professor of marketing at the Kellogg School of Management, and his colleague David Gal, a professor of marketing at the University of Illinois at Chicago, found this notion difficult to square with what they observed all around them: football coaches calling for risky plays in high-stakes games, students waving off the familiarity of their hometown for a college far away, or people leaving secure jobs to start new businesses. If we’re so loss averse, why do we take such big swings in our lives?

Their theory: courage. The ability to take purposeful action in the face of fear is widely prized across cultures; one study found that courage was among just six values shared by nearly every philosophical and religious tradition.

Because much of the research on risk and loss aversion focuses on low-stakes financial gambles, Rucker and Gal suspected different patterns might emerge if they studied important life decisions, where courage is most likely to emerge.

Indeed, across several experiments, that’s precisely what Rucker and Gal found. When facing a risky choice with meaningful consequences for their lives, people have the opportunity to display courage. And because people prize being courageous, in contrast to prior research findings, they may be more likely to opt for the high-risk, high-reward path.

“This suggests that, in contrast to some of the findings in controlled laboratory gambles, people might have a radically different response to risk in some situations,” Rucker says. “When people see an opportunity to be courageous, and want to see themselves as courageous, that may actually lead to a preference for the riskier option.”

The Courage to Take Risks

To see how courage influenced peoples’ willingness to take risks in different types of decisions, in one study, Rucker and Gal recruited 508 online participants. Half the participants—the courage group—wrote about a time they or someone they knew had exhibited great courage. The control group wrote about a time they or someone they knew did something ordinary.

Next, participants read scenarios in which they had to make either an important or a trivial choice. The half who were presented with an important choice were asked to imagine facing a chronic illness. They could either continue in their current quality of life, or try a treatment that might either significantly improve or significantly worsen their situation. The other half of the participants, who read a scenario describing a trivial choice, were asked to choose whether to accept a gamble in which they had a fifty–fifty chance of winning or losing $15.

Among participants who read about the medical decision, those who had written about courage were significantly more like to choose the risky treatment than those in the control group: 57 percent of the courage-group participants opted for the treatment, as opposed to 37 percent of the control-group participants. Thinking about courage, in other words, had made them likelier to take a significant risk.

But when facing a low-stakes financial gamble, the difference between how many participants in the courage group and the control group chose the risky option was relatively small. In other words, the desire to be courageous did not significantly influence people’s willingness to take risks when facing a trivial choice—only a significant one.

Is Courage Just a Greater Appetite for Risk? Not Exactly.

The researchers next wanted to test that it was courage—and not simply high stakes—that led participants to take significant risks.

For their second experiment, they decided to up the stakes in the financial gamble so that it induced the same amount of fear as the other gamble, but lacked a critical aspect of courage: a sense of purpose. As Gal explains, “Courage is not just taking risk. It is confronting fear in a task that is linked to a higher-order goal or that has meaning to the individual.”

They recruited 402 new online participants. Half of the participants read a scenario about a career gamble: they could accept a risky assignment that would either significantly help or hinder their advancement, or continue in their current duties.

The rest read about a significant monetary gamble: a 50 percent chance to win or lose the hefty sum of $5,000. While both scenarios elicited fear, a pretest confirmed that the career gamble was widely thought to be more purposeful, courageous, and worthy of respect. Next, all participants rated from one to seven how much they valued being courageous in life.

The researchers found that, for participants in the career-decision group, valuing courage more highly was associated with a stronger preference for the risky option.

Valuing courage was also somewhat associated with a preference for the risky financial gamble, but much less strongly. Rucker and Gal think this may be because the desire to be courageous and an overall willingness to take risks are interrelated traits—or perhaps because some participants found the financial gamble to be an important life decision, with stakes as high as the career choice.

Either way, the results showed that courage increases peoples’ risk appetite more strongly when the decision has long-term significance for their lives.

Courage Requires Agency

In thinking about courage, Rucker and Gal had a realization: for a decision to be truly courageous, it must be within your control. After all, taking a risk you didn’t choose doesn’t feel like courage. It just feels, well, risky.

So the researchers decided to study this key dimension of courage—agency—because it would allow them to understand more clearly whether participants were making risky choices out of a desire to act courageously rather than simply out of a desire to take on risk.

As before, some participants read a scenario about an important choice (this time, a risky call in an important sports game), while others read a scenario about a fear-inducing but nonetheless less important choice (another monetary gamble).

But this time, there was a twist. Within each group, some participants were told they would get to make the choice, while the rest were told someone else would decide. Then participants stated their preferences and rated on a six-point scale how much they would respect a decision-maker facing an identical situation who took the risky option.

For the high-importance decision, participants who had agency chose the risky option 65 percent of the time—precisely what the researchers expected to happen when the desire to be courageous kicks in. But among participants who did not have agency—that is, they were asked what they would want someone else to choose for them—that old human impulse toward caution dominated. Just 42 percent of these participants opted for the risky call.

For participants who contemplated the lower-importance monetary gamble, on the other hand, having agency had no significant effect on preferences for the risky option.

In general, people reported higher levels of respect for a decision-maker who took the risky option in the sports situation than the monetary gamble. In fact, their level of respect for the risky decision-maker predicted how likely they were to prefer the risky decision—except when they lacked agency.

“If you take away my ability to choose,” Rucker explains, “I can no longer credit myself as being courageous.” Gal elaborates, “when someone else is making the decision, I can’t show courage—so go ahead and give me the safe option.”

The Gifts and Perils of Courage

To these researchers, this work highlights an important and understudied aspect of decision-making: values like courage can override other psychological impulses, especially when the real-world stakes are high.

It also suggests that we need to evaluate how our desire for courage might push us toward decisions that aren’t wise in the end. “You could imagine where you might get into trouble,” Rucker says. “There’s a danger of saying ‘I want to feel courageous’ when you’re going down a path that is not a good decision.”

“Sometimes you do need to be bold and courageous. But other times you might want to ask yourself, ‘Wait, is being bold the right decision here, or do I need to take a step back and think through an appropriate, measured action?’”