Archive for the 'Psychology' Category

Why Leaders Don’t Learn From Success

Posted on April 3, 2011, 6:57 am. 1 Comment

From April’s Harvard Business Review:

In this article we argue that success can breed failure by hindering learning at both the individual and the organizational level. We all know that learning from failure is one of the most important capacities for people and companies to develop. Yet surprisingly, learning from success can present even greater challenges. To illuminate those challenges—and identify approaches for overcoming them—we will draw from our research and from the work of other scholars in the field of behavioral decision making, and focus on three interrelated impediments to learning.

The first is the inclination to make what psychologists call fundamental attribution errors. When we succeed, we’re likely to conclude that our talents and our current model or strategy are the reasons. We also give short shrift to the part that environmental factors and random events may have played.

The second impediment is overconfidence bias: Success increases our self-assurance. Faith in ourselves is a good thing, of course, but too much of it can make us believe we don’t need to change anything.

The third impediment is the failure-to-ask-why syndrome—the tendency not to investigate the causes of good performance systematically. When executives and their teams suffer from this syndrome, they don’t ask the tough questions that would help them expand their knowledge or alter their assumptions about how the world works.

The Dark Side of Creativity: Original Thinkers Can Be More Dishonest

Posted on February 12, 2011, 9:19 am. Closed

A recent study by Francesca Gino and Dan Ariely suggests that creativity is a better predictor of unethical behavior than intelligence.

Abstract

Creativity is a common aspiration for individuals, organizations, and societies. Here, however, we test whether creativity increases dishonesty. We propose that a creative personality and creativity primes promote individuals’ motivation to think outside the box and that this increased motivation leads to unethical behavior. In four studies, we show that participants with creative personalities who scored high on a test measuring divergent thinking tended to cheat more (Study 1); that dispositional creativity is a better predictor of unethical behavior than intelligence (Study 2); and that participants who were primed to think creatively were more likely to behave dishonestly because of their creativity motivation (Study 3) and greater ability to justify their dishonest behavior (Study 4). Finally, a field study constructively replicates these effects and demonstrates that individuals who work in more creative positions are also more morally flexible (Study 5). The results provide evidence for an association between creativity and dishonesty, thus highlighting a dark side of creativity.

Watching Out For Loaded Words

Posted on January 23, 2011, 10:11 pm. Closed

This Time article is from 1982 and is even more relevant today than it was then, simply because of the leaps and bounds by which technology has progressed along with the political and financial interests at stake.

The trouble with loaded words is that they tend to short-circuit thought. While they may describe something, they simultaneously try to seduce the mind into accepting a prefabricated opinion about the something described. The effect of one laden term was incidentally measured in a recent survey of public attitudes by the Federal Advisory Commission on Intergovernmental Relations. The survey found that many more Americans favor governmental help for the poor when the programs are called “aid to the needy” than when they are labeled “public welfare.” And that does not mean merely that some citizens prefer H/2O to water. In fact, the finding spotlights the direct influence of the antipathy that has accumulated around the benign word welfare.

Every word hauls some basic cargo or else can be shrugged aside as vacant sound. Indeed, almost any word can, in some use, take on that extra baggage of bias or sentiment that makes for the truly manipulative word. Even the pronoun it becomes one when employed to report, say, that somebody has what it takes. So does the preposition in when used to establish, perhaps, that zucchini quiche is in this year: used just so, in all but sweats with class bias. The emotion-heavy words that are easiest to spot are epithets and endearments: blockhead, scumbum, heel, sweetheart, darling, great human being and the like. All such terms are so full of prejudice and sentiment that S.I. Hayakawa, a semanticist before he became California’s U.S. Senator, calls them “snarl-words and purr-words.”

Not all artfully biased terms have been honored with formal labels. Word loading, after all, is not a recognized scholarly discipline, merely a folk art. Propagandists and advertising copywriters may turn it into a polished low art, but it is usually practiced—and witnessed—without a great deal of deliberation. The typical person, as Hayakawa says in Language in Thought and Action, “takes words as much for granted as the air.”

Investors: Protect Yourselves From Harmful Biases

Posted on November 20, 2010, 10:06 am. 1 Comment

These are some of the questions I ask myself when looking at a potential investment. I decided to create a nice looking list that would fit on a sheet of paper so I could print out. Then I decided why not share this with whoever wanted it?

The Financial Panic: A Mental Disorder

Posted on August 20, 2009, 12:53 am. Closed

A financial panic is precipitated by sudden, excited, and imprudent action. An industrial depression is precipitated by deliberate, thoughtful and prudent inaction. One is the result of mental excitement, which results in a temporary check to a natural flow of the media of exchange. It is a mental disorder. The other is the effect of calm, deliberate consideration, which results in reducing the rate of production of materials of physical wealth. It is a physical disorder.

A financial panic is an acute malady. Its beginning is sudden, intense, vivid, and startling. Its chief element is fright. It paralyzes finances at a single blow. Each subsequent step in its course is an alleviation. Each day, week or month shows a marked recovery. From its nature and intensity it is short-lived.

An industrial depression is a stubborn, chronic malady. Its beginning is gradual and quiet. It commences and goes on increasing in force for many months, unnoticed. Its cause is silently doing its fatal work while actual business is increasing by leaps and bounds. When actual depression appears, its cause has almost ceased to exist. From its nature and its deep-seated growth industrial depression is long-lived

A financial panic is usually a matter of a few months, weeks, or days. An industrial depression is usually a matter of one or more years.

A financial panic may be compared to a mob, in which a great number of excited minds work upon and incite each other until men act in a body as no one of them would act if left to himself. Industrial depressions, on the other hand, are the cumulative results of the deliberate and thoughtful decisions of individual men.

These two calamities can be classed together only because the results of each have a disastrous effect upon business. A panic has an effect which is short, exciting, and a temporary disaster, not to existing material wealth, but to the documentary representatives of wealth; a loss from which the country may entirely recuperate within a short time. The other is a compulsory laying down of the tools which produce wealth, by a vast army of wealth-creators; a loss that can no more be regained than a lost day or year can be regained.

This is an excerpt from an article written by George H. Hull in 1911 regarding panics and depressions. It almost sounds like it could have been written this year, which I find most interesting because this near-century-old article shows how investor psychology will always remain the same in any setting. The article also helps to serve as a reminder that business and the economy will continue to go up and down in cycles.

Another interesting thing is how Hull chooses to describe panics and depressions. He describes them as if they were diseases or afflictions, or rather, a psychological ailment or “mental disorder,” describing the symptoms and how the disorder will run its course through the economy.

Finally, I look up on this article as a reassurance for the tough times that many of us are experiencing in this country. If people back then could get through bank panics and economic depressions without the benefits of indoor plumbing, air conditioning, and sliced bread, then we really have no need to worry that things will eventually get better for us!

DOW Set to Close Beneath 8000 For Second Day in a Row

Posted on February 11, 2009, 3:44 pm. Closed

I’m not sure if other people think will think this is significant or not, but this could be the first time since last  November that the DOW will close beneath 8,000 for two days in a row. My feeling is that this will be another psychologically important event. When traders, retail investors, and institutional investors realize that DOW sub 8k is more and more a reality, I think they will begin to worry about DOW sub 7k and that is where we will go. If the DOW closes beneath 8k today, this will dramatically increase the odds that the DOW will dip below 7k within the next year.

Take a Look at Simoleon Sense

Posted on January 17, 2009, 11:21 am. Closed

Simoleon Sense has been kind enough to link to several of my blog posts in the past. Please take the time to visit Simoleon Sense. Simoleon provides great link round-ups and focuses on value investing, behavioral finance, economics, and psychology.

Perception is Reality and Feelings Trumps Facts

Posted on September 24, 2008, 12:15 pm. Closed

In September 2005, Malcolm Gladwell wrote an article about auto safety and the rise in popularity of SUVs. It’s an interesting article. Two important facts to take away from the are: (1) perception is reality and (2) feelings often trump facts. If people can acknowledge these two human tendencies, they will at least be more self-aware, and perhaps even more rational and thoughtful. The following are snippets from the article that illustrate these two central points.

Perception is Reality

Then there’s this notion that you need to be up high. That’s a contradiction, because the people who buy these S.U.V.s know at the cortex level that if you are high there is more chance of a  rollover. But at the reptilian level they think that if I am bigger and taller I’m safer. You feel secure because you are higher and dominate and look down. That you can look down is psychologically a very powerful notion. And what was the key element of safety when you were a child? It was that your mother fed you, and there was warm liquid. That’s why cup holders are absolutely crucial for safety. If there is a car that has no cup holder, it is not safe. If I can put my
coffee there, if I can have my food, if everything is round, if it’s soft, and if I’m high, then I feel safe.

Feelings Trump Facts

The truth, underneath all the rationalizations, seemed to be that S.U.V. buyers thought of big, heavy vehicles as safe: they found comfort in being surrounded by so much rubber and steel. To the engineers, of course, that didn’t make any sense, either: if consumers really wanted something that was big and heavy and comforting, they ought to buy minivans, since minivans, with their unit-body construction, do much better in accidents than S.U.V.s. (In a thirty-five-m.p.h. crash test, for instance, the driver of a Cadillac Escalade—the G.M. counterpart to the Lincoln Navigator—has a sixteen-percent chance of a life-threatening head injury, a twenty-percent chance of a life-threatening chest injury, and a thirty-five-percent chance of a leg injury. The same numbers in a Ford Windstar minivan—a vehicle engineered from the ground up, as opposed to simply being bolted onto a pickup-truck frame—are, respectively, two percent, four percent, and one percent.) But this desire for safety wasn’t a rational calculation. It was a feeling.