Wednesday, March 28, 2018

Excessive Self-Regard (Egocentricity)

Definitions

Egocentricity is not a good word to describe what I am going to say so I had to change the term for an excessive self-regard. You can define it as ”An excessive belief in your own choices, skills, personal characteristics, stuff, etc.”

An excessive belief in your choices and skills

Most people think they are better than average in things they do. For example, 90 per cent of the Swedish drivers thought they were better than average. It is easy to see it is not mathematically possible. Finding excuses like bad luck for failures, is one of the most usual ways of letting your ego work against you. Your ego can also produce big failures after lucky successes. Succeeding because of luck, instead of skill, can create overconfidence for future success in similar situations. This can lead you to reach for big payoffs by taking risks you cannot handle. It is better to lose by doing the right thing than to win by doing the wrong thing. First thing will lead to bigger successes in the future and the last thing bigger failures in the future. In the long run, fixing the wrong ways of getting results is more important than getting the right results.

Preferring people like you

You will probably prefer people like you. They may look like you, think about life like you, have a same name or some other things that resemble your characteristics. You may choose to be a customer for a salesman you resemble or have same hobbies, same type of family etc. Employers hire people who are like them. They think they can estimate their abilities better than actual track records can show. Bigger groups with similar people will succeed worse than diverse groups of people. The biggest catastrophe of this millennium, the real estate crash of 2008-2009 was caused by groups without enough diversity in opinions, risk-taking etc. When groups of people go too far in similarities of opinions, biggest catastrophes will come. Groupthink rules and big failures happen.

Loss aversion and Endowment effect

Many options in life have two sides. You can win or you can lose. You have to make decisions based on your ability to understand or take risks. Most people suffer more from losses than winning. For example, imagine a coin toss in which you can win 60$ if the result is heads, and you can lose 50$ if the result is tails. Would you take that bet? In more cases, people decide not to gamble. Imagine a situation where you have already lost 50$. And you want to win it back with a coin flip in which there is a possibility to lose 50$ more if the result is heads or a possibility to get your 50$ back if the result is tails. Would you take that bet? More people would take this bet than the first one.

These bets are forms of loss aversion. Some research suggests that people need to have twice as much gains than losses before they will take these bets. When we talk about a single bet, there can be some circumstances that can make avoiding loss the smartest decision, like not affording to lose any money. In the long run, you should take all these kind of bets as often as possible, when the losses are not crucial to your survival. There is also an endowment effect that says that you think the things you already have are more valuable to you than what you paid for them. For example, if you paid for a concert ticket for 100$, you will not sell it without getting much more money. If you ever go to a garage sale, it is probable that you will see that most prices are too much for you. Seller suffers from the endownment effect and keeps prices high.

Consistency and commitment bias

If you have made a choice or taken a stand, you will suffer from personal pressures to consistently follow the direction of the commitment. You will continue to behave consistently with these pressures. The biggest reasons are that you save energy and it is most often the smartest thing to do. The longer you continue, the harder it comes to change your behavior. Establishing good habits help you to use this tendency into your own advantage. Watch out for bad habits. You should change them before you have strengthened them. Moving consistently into wrong direction, will create wrong algorithms. And moving into wrong direction for too long will create a bad habit that is hard to get rid off. When it comes to commitments, the more effort you put, the more committed you will be.

There are other ways to make a stronger commitment. You should publish your commitment in some way. For example, you can put it on writing and give the commitment to the people you trust and admire. Written commitments require more work than the verbal ones. They will lead to more effort, and you will have better chance to live up to them. Watch out for all the public declarations, even the small ones, you are about to give. Be sure they work for your advantage. Saying yes too many times can lead you to problems with the so-called compliance practitioners like salesmen,, con-men, representatives of goodwill organizations, etc. They will probably try to lead you to wrong direction by asking really small commitments before the big ones.

Antidotes against excessive self-regard

There are different antidotes for different kinds of excessive self-regard. You have to understand that your track record is more important than your belief in your choices and skills. When you make a choice, you have to measure and check the end result. And believing the end result tells you more than your opinions. The other antidote is to seek the smartest possible experts to tell you the truth about your choices and skills. Do not believe a single opinion. These experts cannot have incentives to act with dishonesty. If the experts are not available, use your friends and relatives who are willing to tell you the truth no matter how much it will hurt. These people are hard to find. They are worth all the effort. Modern way is to publish your best ideas and choices and principles you have to make them. For example, create a website that is available for everybody´s feedback.

The best way for employer to avoid hiring people like him/her is to believe applicant´s past record more than face-to-face interviews. If you are a customer, thinking about buying something, you can choose a salesperson who is completely different than you are. For example, choose an old male if you are a young woman. You should also mostly concentrate on the product than giving any information about yourself. Similarity has a smaller effect on you this way. Antidotes of a loss aversion and an endowment effect are hard to find. The way you could approach loss aversion is to think what would happen in the long run if I chose this possibility instead of the other one? One antidote for endowment effect could be to not buy anything. The other way is to always seek an expert´s opinion of the true worth of your possession.

The best way to avoid being consistent in the bad way is to be consistent in a good way. Lots of good habits help you to get what you want in life. You should also alter your enviroment in a way that reduces available triggers for bad habits, decreases your contacts with compliance-practitioners and possibilities of saying yes to commitments that are no good for you. You should also challenge your best ideas and practices all the time. Always seek productive arguments against them. If you are not willing do it, find someone who is. You can even use your worst enemy if he can think clearly.

Sources:

Poor Charlie´s Almanack, Peter Kaufman
Thinking Fast and Slow, Daniel Kahneman
Influence, Robert Cialdini

Have a nice end of the week!

-TT

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