According to the good folks at the DecsionLab.com;
“The self-serving bias describes when we attribute positive events and successes to our own character or actions but blame negative results to external factors unrelated to our character.”
“Many individuals can remember their time during school, specifically their different experiences and reactions when receiving a good grade and a bad grade. Particularly as younger students, many people can remember attributing success to their own skills when receiving a good grade on an assignment. In turn, when someone would receive a poor grade, they would perhaps initially attribute the poor result due to external factors. These external factors could have ranged from things such as a professors’ inability to teach the subject, the difficulty of the topic matter, or group members’ faults.”
We see no greater instances where this occurs than in the investment industry.
Certainly, portfolio managers and analysts alike suffer from this bias. When unforeseen outside forces unexpectedly drive down the markets, excuses are given and causes are blamed, such as Federal Reserve Policy, Military Interventions, Natural Disasters, rather than the so-called expert admitting their inability to foresee them.
“The Self-Serving bias is extremely common and is described as a human perceptual process that is distorted.
Researchers have identified several different reasons for why the self-serving bias occurs so frequently among individuals. The self-serving bias is common in relation to our need to either maintain or enhance our own self-esteem. By attributing our successes to our own characteristics, and our failures to external circumstances, we spare ourselves any real opportunity for criticism. The self-serving bias skews our perception of ourselves and of our reality, in order to improve and preserve our own self-esteem in the process.”
“Another reason that this cognitive bias is particularly common, is due to the fact that humans are inherently optimistic. Negative outcomes tend to surprise people, and thus we are more likely to attribute negative results or outcomes to situational and external factors, rather than to personal reasons.”
Investors who exhibit attributes of Clarity are always prepared for, and expect, a 20% downdraft in their portfolios. For when it happens, they have developed a shopping list of great companies they had hoped to one day purchase on sale. As opposed to firing their advisor, they partner with them in executing a strategy based on clear objectives. Clarity stares fear in the face and never backs down.
Advisory Services offered through Nepsis, Inc.; An SEC Registered Investment Advisor.