Cognitive Dissonance – Denial Ain’t Just A River In Egypt

We tend to distort facts for our own psychological comfort. This psychological discomfort is known as cognitive dissonance. Some extreme examples – a parent who refuses to believe their child is dead and mothers of criminals who do not accept their offspring has done something terrible.

The reality is too painful to bear, so you just distort it until it’s bearable. The truth is – WE all do that to some extent, and it’s a common psychological misjudgment that causes a lot of problems.

If we make a habit of continually avoiding information that is painful, we’ll not only develop a distorted view of reality, we’ll train other people not to tell us the truth.

I came across this term while I was reading about Charlie Munger – vice chairman of Berkshire Hathaway. He wrote about how the common human biases and how it applied to investing in general.

He said something to the extent – markets are efficient but human behaviour is irrational and that’s why unexpected things happen to the market.

In our boring life, there are some insidious examples. For example, the belief that we will have a long & healthy life and the probability that we fall sick is almost nil.

Another insidious belief, our current CPF plans are good enough to provide us with good retirement coverage.

At work, we have a belief that we are important and good enough that we will not be targeted for retrenchments or layoffs.

Now having confidence in our abilities is essential. We need it in order to execute our tasks and succeed.

But there comes a time when we need to face up to the numbers and probabilities.

The truth is unexpected things happen and life can be short.

The truth is that we cannot expect the government to take care of us.

The truth is we are all dispensable and in a company’s hunt for profits, employees are mere numbers on a spreadsheet.

When I read about how DBS still loaned $200 million to Swiber in the 2 weeks before it filed for liquidation, I wonder did the decision-makers at DBS faced up to this cognitive bias that they had – the price of oil WILL go up?

Did they count on the price of oil remain low or keep going down? Was there a bias that – we are DBS, we are never wrong?

Do start to educate yourself on investment and planning for retirement yourself. No one is going to take of yourself except yourself. Have some backup plans in place so you need not worry if your company decides to desert you.

The knowledge and opportunities are all easily available but you need to make a decision to face up to the cold, hard facts. You can refer to my resource page here.

If you are still unsure, do contact me to setup a no-obligation discussion on how you can get started on planning your financial future.

Let me end with a quote from Charlie Munger –

“Spend each day trying to be a little wiser than you were when you woke up. Discharge your duties faithfully and well. Step by step you get ahead, but not necessarily in fast spurts. But you build discipline by preparing for fast spurts. Slug it out one inch at a time, day by day. At the end of the day – if you live long enough – most people get what they deserve.”

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