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Psychology of Misjudgment 5. Inconsistency-Avoidance Tendency


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5. Inconsistency-Avoidance Tendency

 

The brain of man conserves programming space by being reluctant to change, which is a form of inconsistency avoidance. We see this in all human habits, constructive and destructive. Few people can list a lot of bad habits that they have eliminated, and some people cannot identify even one of these. Instead, practically everyone has a great many bad habits he has long maintained despite their being known as bad. Given this situation, it is not too much in many cases to appraise early-formed habits as destiny. When Marley’s miserable ghost says, “I wear the chains I forged in life,” he is talking about chains of habit that were too light to be felt before they became too strong to be broken…

 

It is important not to thus put one’s brain in chains before one has come anywhere near his full potentiality as a rational person.

 

Simply, people are averse to change. We’re creatures of habit. Anyone who’s ever attempted to remove a bad habit or start a good habit knows how difficult that change can be, even when we know the habit is bad.

 

When it comes to ideas, the solution is to attack confirmation bias head-on. Follow Darwin’s example. Purposely seek out counterarguments before coming to a conclusion.

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It has long been recognized that the older you get, the more 'resistant' to change you become.

Applied to investing; invest in equities during your 30's to 40's when you're 'flexible', and FI during your '50's through 70's when 'judgement' is typically more valuable. Often expressed as an 80/20 equity allocation at 30, that progressively rebalances to 20/80 by 80.

 

However, 'resistance' is NOT chronological , it is driven by life event. Death of parent/child, divorce, windfall, etc.

Best example is retiring boomers who made their stash early, got rid of the kids, and have 5-10 years until the 'traditional' retirement age of 65-70. They now do business 'for fun', they come in as professionally trained shirt-sleeve C-Suite, and they buy out existing businesses to expand/restructure/resell. Small is beautiful, innovation is the name of the game, and the security is now the entire business. They are investing like they were in their mid-30's - but this time with both brains and experience. Little resistance to change, healthy lifestyles, and little reason not to live 'well' until 90+

 

The 'chains' are important for structure, but it is to the investor to maintain.

If you never throw anything away, you're called a 'hoarder', and it is regarded as a mild mental disorder.

Same thing applies here.

 

SD

 

 

 

 

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Working on strengthening the process and muscle of disconfirming the hypothesis. First at the start, then with fundamental changes. For an beginner investor like me, it's still very challenging as to what's disconfirming evidence versus what's noise - a learning curve.

 

Other rules at the portfolio level that have helped me are deciding max position size limits early when forming the investment thesis, and not doubling down to try to catch a falling knife (and get killed in the process). Again, didn't come from simply reading this body of work, it is something that has taken past mistakes for the bad habits to be broken.

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I can think of your open mind reference, strong beliefs loosely held, natural doubt avoidance lolapalooza, and the fact the more you do it, repeat it internally, or out loud, or even stronger out loud to others the tighter the door closes shut so to speak. Probably requires active energy, intention and awareness to avoid this.

 

I also believe you can use to establish good habits or character traits such that you can use it to your advantage such as saying out loud and repeatedly and meaning what you say, for example saying “I am a non smoker” if you wish to quit.

 

Inversion in the form of “in what way may this not be true” may also be a helpful exercise.

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