War Economy Chapter 5: Fear, Uncertainty, and Markets: The Psychology Behind Wartime Investing
When missiles start flying and borders close, something interesting happens to investors. We like to think we’re rational, data-driven decision-makers. But when war breaks out? That carefully constructed logic crumbles faster than you’d expect.
Let’s talk about what actually happens in your brain when markets start reacting to geopolitical chaos—and why your instincts during these moments are usually wrong.
When Your Brain Takes Over: The Amygdala Problem
Here’s what most investment guides won’t tell you: during periods of armed conflict, you’re not really making financial decisions with your prefrontal cortex (the rational part of your brain). Instead, your amygdala—the primitive fear centre—hijacks the controls.
Research on decision-making during martial law in Ukraine shows something fascinating. When people are living under actual wartime conditions, their risk assessment fundamentally changes. Not because they’ve analysed new data, but because their brain chemistry has shifted into survival mode.
Think about it this way: your amygdala evolved to help you survive sabre-toothed tigers, not navigate equity markets during geopolitical crises. It’s optimised for “run now, ask questions later.” Unfortunately, that’s precisely the opposite of what successful wartime investing requires.
The Cortisol Connection
What makes this worse is the stress hormone cortisol. When conflict erupts, cortisol floods your system. This isn’t just a feeling—it’s measurable biochemistry that fundamentally alters how you process information.
High cortisol levels do several things that wreck investment decisions:
- Narrow your focus to immediate threats (making long-term thinking nearly impossible)
- Amplify negative information while filtering out positive signals
- Push you toward action—any action—even when doing nothing would be smarter
- Impair your ability to calculate risk-reward ratios accurately
We saw this play out dramatically in early 2022 when Russia invaded Ukraine. Investors with cortisol-flooded brains dumped European stocks indiscriminately. Those who managed to keep their biochemistry in check? They recognised that not all European companies would be equally affected and found opportunities others missed.
The cruel irony: the moments when your body is screaming at you to do something are often exactly when you should sit still.
Emotional Decision-Making: When Feelings Trump Facts
Most people don’t realise they’re making emotional decisions. They genuinely believe they’re being logical. “I’m selling European energy stocks because the situation is clearly unstable”—sounds rational, right?
Except when you dig deeper, the “clearly unstable” part is doing a lot of heavy lifting. What does “unstable” mean? Compared to what? Over what timeframe? With what probability of different outcomes?
These questions don’t get asked when emotions are running the show. Instead, we operate on vibes and fear.
The Fear Cascade
War creates a unique emotional cascade that goes something like this:
Stage 1: Shock – “I can’t believe this is happening” During this phase, which typically lasts hours to days, many investors freeze completely. Markets during global conflicts often see unusual patterns during this initial shock period—sometimes even brief rallies as people struggle to process what’s happening.
Stage 2: Panic – “I need to do something NOW” This is where the real damage happens. Cortisol is peaking, the amygdala is screaming, and CNBC is showing explosions on loop. Sell buttons get pressed. Safe havens get mobbed. Rational analysis goes out the window.
Stage 3: Paralysis – “Everything is terrible, and there’s nothing I can do” After the panic selling, many investors swing to the opposite extreme. They convince themselves that the situation is hopeless and miss recovery opportunities that show up surprisingly quickly.
Stage 4: Gradual Recalibration – “Maybe the world isn’t ending” Eventually, cortisol levels normalise. The amygdala quiets down. Rational thinking comes back online. But by this point, the damage is often done—you sold low during panic, and now you’re buying back higher during recalibration.
The investors who do well during wartime aren’t the ones who feel no fear. They’re the ones who recognise these stages and refuse to make irreversible decisions during stages 1-3.
Herd Behaviour: When Everyone Runs for the Exit
Humans are social creatures. This served us well on the savannah—if everyone else is running from danger, you should probably run too. But in markets, herd behaviour is usually destructive.
During wartime, herd dynamics intensify dramatically. Nobody wants to be the idiot still holding stocks when everything collapses. So when you see others selling, the pressure to join them becomes overwhelming.
The Paradox of Safety in Numbers
Here’s the twisted logic of herd behaviour: following the crowd feels safe even when it’s objectively dangerous. Losing money alongside everyone else feels less painful than losing money alone. At least if the herd is wrong, you have company.
We’ve watched this play out across multiple conflicts throughout market history. The pattern is remarkably consistent: initial conflict → panic selling → herd stampede → bottoming → slow recovery → eventual new highs.
Yet despite seeing this pattern repeatedly, each new conflict triggers the same herd response. Why? Because in the moment, this time genuinely feels different. The amygdala doesn’t care about historical patterns—it only knows that right now, everyone else is scared, and maybe they know something you don’t.
Breaking Free from the Herd
The uncomfortable truth is that making money during wartime often requires doing the opposite of what feels safe. When the herd is running for the exits, that’s frequently when the best opportunities appear.
But breaking from the herd requires something most people don’t have during a crisis: the ability to separate “what could happen” from “what will probably happen” and “what’s already priced in.”
Consider the metal markets as an example. Metals have historically served as fear barometers during conflicts, with gold especially seeing panic buying. But here’s the thing: by the time the herd has piled into gold, much of the crisis premium is already embedded in the price. The real opportunity might have been weeks earlier, before the herd showed up—or it might be in something completely different that the crowd is ignoring.
Media Amplification: How 24/7 News Hijacks Your Brain
If the amygdala and cortisol weren’t bad enough, modern media throws gasoline on the fire. During wartime, news coverage shifts into a different gear. Explosions get more airtime than economic analysis. Death tolls scroll constantly. Expert panels speculate endlessly about worst-case scenarios.
This isn’t journalism—it’s emotional manipulation, even when unintentional. And it absolutely wrecks your ability to make sound financial decisions.
The Availability Heuristic Trap
Here’s how media amplification works psychologically: humans tend to judge the probability of events based on how easily we can recall examples. This is called the availability heuristic, and news media exploits it ruthlessly.
When you see footage of conflict 50 times in one day, your brain starts treating that as representative of reality. Not just “there is a conflict happening somewhere,” but “the world is fundamentally unsafe, and everything is collapsing.”
The actual probability of various outcomes hasn’t changed based on how many times you’ve watched the same explosion from different camera angles. But your brain’s assessment of those probabilities has shifted dramatically.
This is why many investment advisors recommend limiting news consumption during crises. Not because ignorance is bliss, but because the signal-to-noise ratio plummets during wartime, and noise actively degrades decision quality.
The Echo Chamber Effect
Social media makes media amplification exponentially worse. You’re not just getting news from professional outlets—you’re getting hot takes, speculation, rumours, and panic from everyone in your network simultaneously.
During the early days of any conflict, social media becomes a fear amplifier. Everyone is sharing the worst news, the scariest scenarios, the most alarming takes. Algorithms, optimised for engagement, keep showing you content that triggers emotional reactions.
This creates a feedback loop: you see scary content → you feel anxious → you engage with anxiety-related content → the algorithm shows you more of it → your anxiety increases. Meanwhile, your cortisol rises, your amygdala takes over, and your ability to think clearly about investment decisions during wars deteriorates.
Why Rational Thinking Is Hardest During War
Let’s tie this together. You’ve got:
- An amygdala screaming at you to do something
- Cortisol is flooding your system and narrowing your focus
- Emotions masquerading as logic
- Everyone around you is panicking
- The media is showing you explosions on repeat
- Social media amplifies every anxiety
And you’re supposed to make calm, rational, long-term investment decisions?
It’s no wonder that most people fail at wartime investing.
The Rational Mind Requires Resources
Here’s what makes this even harder: rational thinking isn’t free. It requires cognitive resources—mental energy, working memory, and motivational bandwidth. And all of those resources are being consumed by stress during wartime.
Think of your rational mind as a computer processor. When everything is calm, you have plenty of processing power available for complex analysis, nuanced thinking, and long-term planning. But when war breaks out, that processor is suddenly running dozens of background programs: threat assessment, emotional regulation, social signalling, family protection concerns, news monitoring, and on and on.
By the time you sit down to evaluate whether to rebalance your portfolio, your mental processor is already maxed out. The simple task of comparing two investment options—which would be trivial under normal conditions—becomes genuinely difficult. Your brain, lacking the resources for careful analysis, falls back on shortcuts: follow the herd, trust your gut, do what feels safe.
The problem is that all of those shortcuts are optimised for physical survival, not portfolio management.
The Information Overload Factor
Wartime also brings an avalanche of new information, most of it conflicting. Country A imposes sanctions. Country B retaliates. Company C suspends operations. Currency D collapses. Government E announces stimulus. Markets F, G, and H all react differently.
Under normal conditions, you could process this methodically. But when stress has already depleted your cognitive resources, information overload pushes you toward paralysis or panic. You can’t possibly analyse everything, so you either freeze (analysis paralysis) or you grab onto the first simple narrative that makes sense (usually whatever the herd believes).
This is why successful wartime investors often deliberately limit their information intake. Not because they want to be uninformed, but because too much information during high stress is worse than less information processed carefully.
What This Means for Your Portfolio
So what do you actually do with all this psychology?
First, acknowledge that you’re not immune to it. Everyone thinks they’ll stay calm during a crisis until the crisis actually hits. Recognising that your brain will work against you is the first step toward working around it.
Pre-Commitment Strategies
The best defence against your amygdala is to make decisions before it takes over. This means:
Set rules before conflict erupts. Decide now what percentage of your portfolio you’re willing to lose without taking action. Write it down. Make it concrete. When war breaks out, and you’re down 15%, you can refer back to your pre-conflict rule instead of making a panicked decision.
Establish automatic rebalancing triggers. If certain asset classes drop by X%, automatically rebalance. This removes emotion from the equation entirely—you’re following a predetermined system, not making a fear-based choice.
Create a “do nothing” checklist. This sounds backward, but it works. Before you’re allowed to make any major portfolio changes during a crisis, you must check off a list of requirements: wait 72 hours, discuss with an accountability partner, write down your reasoning, model three different scenarios, etc. The goal is to introduce friction that slows down amygdala-driven decisions.
Recognition Over Elimination
You can’t eliminate fear. You can’t turn off your amygdala. You can’t prevent cortisol from flooding your system during genuine threats.
But you can recognise when it’s happening. When you notice yourself urgently wanting to sell everything, that’s probably your amygdala talking. When you find yourself certain that this conflict will be catastrophic for markets, ask yourself whether that certainty is based on analysis or emotion.
The investors who navigate wartime successfully aren’t the ones with the best information or the cleverest strategies. They’re the ones who can recognise when their psychology is hijacking their decision-making and have systems in place to override it.
The Uncomfortable Truth
Here’s the reality nobody wants to hear: the best time to buy is usually when your entire nervous system is screaming at you not to.
That moment when the news is worst, when the herd is panicking, when your amygdala is in full control, when cortisol has you convinced the world is ending—that’s often the moment of maximum opportunity.
But acting on that knowledge requires overriding millions of years of evolution telling you to run. It requires recognising that your feelings, no matter how powerful and convincing, are not a reliable guide to market outcomes.
It requires accepting that doing nothing—or worse, buying when you want to sell—will feel absolutely terrible in the moment, even if it’s objectively correct.
Most people can’t do this. That’s not a judgment—it’s just neuroscience. Your brain isn’t designed for contrarian investing during wartime. It’s designed to keep you alive, and sometimes keeping you alive means running when others run.
The question is: are you trading to feel safe, or are you investing to build wealth? Because during wartime, those two goals often point in opposite directions.
Moving Forward: Preparation Over Prediction
You can’t predict when conflicts will erupt. You can’t predict how markets will initially react. You can’t predict how long the panic will last or how deep the decline will go.
But you can predict with near certainty that your psychology will work against you. You can predict that your amygdala will take over, that cortisol will impair your judgment, that emotions will masquerade as logic, that the herd will panic, and that the media will amplify everything.
Given that predictability, the smart move is to prepare for your own psychological response rather than trying to predict market movements.
Build systems that work when your brain doesn’t. Make rules when you’re calm that you’ll follow when you’re panicked. Limit your exposure to fear amplifiers. Find an accountability partner who can reality-check your crisis decisions.
And most importantly: understand that feeling afraid during wartime is normal and healthy. What’s not healthy is letting that fear make your investment decisions.
Your amygdala is trying to keep you alive. Let it do that job. But don’t let it manage your portfolio.
Spend some time for your future.
To deepen your understanding of today’s evolving financial landscape, we recommend exploring the following articles:
Case Study: The Decline of ChatGPT’s Market Dominance (2023-2026)
FIRE Movement Explained: How to Retire Early and Its Trade-offs
Why a Top Investment Firm Just Dropped Bitcoin Over Quantum Computing Fears
War Economy Chapter 4: From Stability to Shock: How Wars Disrupt Normal Market Cycles
Explore these articles to get a grasp on the new changes in the financial world.
Disclosure
This blog post is intended for informational and educational purposes only and does not constitute financial advice. The content reflects general market observations and psychological principles, not specific recommendations for buying, selling, or holding any financial instruments. Investing in financial markets carries inherent risks, and past performance is not indicative of future results. Always consult with a qualified and certified financial advisor before making any investment decisions. The author and publisher disclaim any liability for any losses incurred by readers who act on the information presented herein.
References
- Shcherban, T. (2025). Psychology of Risk in Economic Decision-Making Under Martial Law: Evidence from Ukraine. Peace Economics, Peace Science and Public Policy, 24(3). doi:10.1515/peps-2024-0053
- IG. (n.d.). How War Affects Markets: Trading During Global Conflicts. Retrieved from https://www.ig.com/en/news-and-trade-ideas/how-war-affects-markets-and-trading-opportunities-during-global–250623
- Picture Perfect Portfolios. (n.d.). A Complete History of Bull and Bear Markets: Key Lessons Learned. Retrieved from https://pictureperfectportfolios.com/a-complete-history-of-bull-and-bear-markets-key-lessons-learned/
- Shah, H. (n.d.). Metals as a Barometer of Fear and War. LinkedIn Pulse. Retrieved from https://www.linkedin.com/pulse/metals-barometer-fear-war-harshad-shah-rthuc
- AvaTrade. (2025, March 25). How to Invest During Wars. Retrieved from https://www.avatrade.com/blog/trading-history/investing-during-wars
