Personal Finance

Always deal with reputable firms to avoid risks

investors queue to buy shares
Local investors queue to buy shares listed on the NSE during a past initial public offering. FILE PHOTO | NMG 

Protection. Attack. Defend. Reprisals. Escape. The ancient world served as a tumultuous place for human existence. Inhabitants of different areas could meet peril around almost any corner, cranny, bush, or tree.

Inasmuch, the human brain developed a keen mental safety net to keep us out of harm’s way. The subconscious sections of the mind urge us to immediately react if someone jumps out in front of us, a snake crosses our path, or we approach a cliff without a railing.

These psychological mechanisms stem from deeply rooted ancient needs for safety and protection. As an example, in the bush in prehistoric times, many factions of competing clans roamed the Rift Valley. Some clans were hostile with others docile.

Our brains developed the ability to quickly learn to associate different categories of humans, plants, animals and weather, among others. If a particular hostile clan wore purple, as an example, then our subconscious brains would associate purple with danger and immediately prompt us with a warning if we saw an individual dressed in purple passing by on a nearby trail.

Further, if we noticed that people who wore yellow were often seen in the presence of those who wore purple, then we would also associate yellow with purple and therefore become alert and concerned when someone in yellow attire came in proximity.


Our brains also hold the enormous capacity for empathy for those we associate as safe and similar to us.

Neural scientists Boris Bernhardt and Tania Singer explore empathy and our abilities to associate and categorise.

Going back to the above example, if our clan wore green, then if we saw someone coming off in the distance decked out in green coverings, we would feel safe and empathetic towards them even before confirming who was coming.

Also, if our clan made a peace pact with another clan who wore predominantly red, then our feelings of safety and empathy would be transferred to an approaching individual wearing red.


Our empathy would not psychologically reach the same levels for those associated with groupings we find as similar to ourselves, such as our green clan, but would still far exceed those with no association or opposite association.

Organisational behaviourists call such association reputation transfer.

In the modern world, we still function based off of a reputation-based environment. Even though we no longer face quite so many perils, our brain still functions based on safety and association.

We tacitly know this since we try to choose the most reputable universities for our children because we hope that the institution’s strong reputation gets transferred onto our child and therefore they experience better career prospects.

Also, when sales agents make cold calls trying to solicit business, they often start off by naming some of their bigger more famous customers hoping that their reputations rub off on them.

Reputation by association even comes in the form of highly sophisticated financial markets. Newly published research by Salim Chahine, Igor Filatotchev, Garry Bruton, and Mike Wright in the prestigious Journal of Management that financial market investors in the complicated world of venture capital and initial public offerings (IPOs) rely on reputation transfer over purely quantitative financial measures for investing decisions.


In the efficient market theory, investment price decisions for publicly traded equities should quantitatively be assessed by market stakeholders with rational decisions on measurable data.

However, companies going public on securities exchanges receive higher or lower IPO subscriptions and share prices based not only on their own financial and strategic directions but also on who the company is associated with.

IPOs for companies backed by venture capital firms with a positive IPO track record in their most recent deals held a substantial measurable effect on improving their clients’ share prices than did lesser known or mixed track record venture capital firms.

So, even in the most complicated aspects of the modern business world, our primitive empathy, safety, and reputation associations still shine and overtake our logical conscious minds.

Aspiring business executives should then make intentional efforts to build their reputational databases to boost perceptions of their associations in the Kenyan business community.

Then on the flip side, we should try to specifically and consciously overrule our subconscious urges and not be so impressed by associations.

Therefore, we should only enter into sales deals and partnerships with individuals and companies whose own merits can stand on their own. Otherwise, we risk significant disappointment with sour transactions.