Self-Serve Psychology
Behavioral New World
Self-Serve Psychology
May 1, 2021
Remember when you were smart enough to get into the stock market in March of 2020, right before its impressive rise? Genius! And just a few months before that you moved up from that dinky bungalow to the larger house? Smart call!
On the other hand, your decision to invest big in your company’s stock hasn’t played out well, has it? The darn CEO doesn’t know what’s she’s doing. Is the Board of Directors asleep or just brain dead? And what about that timeshare you own in Cyprus? Clearly mis-managed—and now even more undervalued than when you bought it.
Take a step back and look at the important financial decisions you’ve made in the last five years. The good ones obviously occurred because of your insight and keen analysis, right? And the bad ones—well, they were someone else’s fault or the result of some completely unpredictable event, external to you.
Congratulations, you are a poster child for “self-serving bias,” which occurs when you (actually, “we”—all of us have this tendency) attribute success to your personal skills but consider failures to have been outside your control. This tendency is not surprising—we all want to think well of ourselves. The problem is that self-serving bias gives us a distorted view of our decision-making abilities, and that can mean trouble for decisions yet to come.
A related phenomenon is the “above-average” effect. For example, a vast majority of people report (and apparently believe) that they are above-average drivers. Have you ever heard any man – and usually it is men who are afflicted most on this front – ever say casually, “Yeah, I definitely have below-average skills when I get behind the wheel. I’m probably in the lower 25%.” I would wager not. Most men believe the opposite, leading to another bias: overconfidence, which often leads to more bad decision-making (see the September 2020 newsletter, “Hubris”).
What can we do to counteract self-serving bias? Emotions, such as satisfaction about a good outcome or frustration about a bad outcome, get in the way of objectivity. You might ask yourself, “What am I feeling?” Merely acknowledging that we are reacting emotionally can allow us to become more detached.
If you conscientiously analyze your decisions (is the timeshare really mismanaged?), including increasing awareness of any emotions operating in conjunction with them, you will have what I call a “realistic explanation style.” You describe the world more accurately, to yourself and to others. Put another way, the input into your decision-making process increases in quality, resulting in higher-quality output.
And that’s a smart call.