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Psychology of Misjudgment #12. Excessive Self-Regard Tendency


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12. Excessive Self-Regard Tendency


"We all commonly observe the excessive self-regard of man. He mostly misappraises himself on the high side, like the ninety percent of Swedish drivers that judge themselves to be above average. Such misappraisals also apply to a person’s major “possessions.” One spouse usually overappraises the other spouse. And a man’s children are likewise appraised higher by him than they are likely to be in a more objective view. Even man’s minor possessions tend to be overappraised. Once owned, they suddenly become worth more to him and he would pay if they were offered for sale to him and he didn’t already own them… And all man’s decisions are suddenly regarded by him as better than would have been the case just before he made them."


"This is better known as the endowment effect. We tend to overestimate our skills, decisions, and possessions. We also prefer people similar to us. That can lead to groupthink and herd behavior which is prevalent in investing.


In investing, this leads to people who think they pick stocks when they can’t, put a higher value on the investments they own, who hang out with other people who think the same, invest in the same things, and suffer the same when they’re wrong. Then they refuse to accept their lack of skill is the problem, so they collectively blame something else for their poor results.


The solution is to be objective, open-minded, humble, and accepting of mistakes."


Overconfidence in our abilities. 


How much does our own ego get in the way of our thought process and seeing reality more objectively?

I think I have underestimated the effect of ego on my own thought process (and those of others) historically.


Not the easiest bias to correct.  We are all very ignorant about much.  Recognition is a good first step.  Keeping people around who will call out our stupidity also helps.


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