Investing or undertaking involves dealing with our emotions. That natural part that has made us evolve as human beings is transmitted every moment in our day to day life. In fact, Charlie Munger, vice president of Berkshire Hathaway, defined something very subtle in a few words: How can economics not be behavioral? If it's not behavioral, what the hell is it?
Differentiating and becoming aware of why we feel, will make us take distance to process our emotions before they get involved in something. Not only that, but also the logical part, because the brain, far from being programmed to discover the truth, is programmed to survive. And what happens, for example, in the markets when all investors act on the same page? That the market tends to yield certain results. Warning that psychological traps and mental biases exist will help you make more rational decisions. Otherwise, we can fall prey to the current, and follow the same fate.
The Illusion of Being in Control
A first example of the extent to which we believe that we are managing a situation is that of thinking that we are in control of something. It usually occurs by confusing our skills and abilities, often overrated, and believe that every act will revolve around our actions. In reality, although hard work is justified, there is a high percentage of what factors outside of oneself can influence a business.
One of the measures to overcome this illusion of control is to think about what factors we cannot control. From the partners, to the clientele, the tastes, or new regulations, for example. At this point, what should be noted is that working hard usually pays off, but always working smart.
The Confirmation Bias
This cognitive bias is very particular. Sometimes it is very common in certain people, in others not so much, but at some point we have all fallen into it. And it is that it is neither more nor less than attend and read information aligned and according to our way of thinking. Commonly believe something, or think something, seek that information, and far from contrasting what we think, it is pursued to affirm what we think. Consequently giving a fatal error. In case of being wrong, we will reaffirm a false belief with more conviction.
The truth is that if you think about something and are very sure, nothing would happen to hear or attend to a contrary opinion. Even more so, if we are risking something valuable to us, such as our time, effort or capital. Contrasting and / or having a different perspective is not a bad thing, it can even serve to validate what we believe, or in a good case, recognize our error. It is a mental bias, but if we have it mastered, we will adopt a more humble position with ourselves. And as a result, a more accurate approach to the issue at hand.
Compliance Bias
Personally, I think that this bias is, if not the most, one of the most "dangerous" that we can find. Conformity bias underlies adopting majority thinking from within a social group. It easily tends to happen when we do not have a clear idea about something or we embrace the prevailing thought of a group. Usually occurs believing that if so many people think the same, it will be for some reason, and unconsciously we attribute to him that this idea / thing must have been contrasted. It also comes according to the level of our insecurities.
End up accepting a belief even if we feel that it is not correct, it does not usually have good results. Among others, because if we are starting a new business, improving the image, or making any other type of investment ... It will be because we have identified something that most people do not see. For what reason then should we change our minds? You have to keep your feet on the ground, but without leaning excessively and settling with the majority thinking.
Empathy of Different Levels
We live this in our own flesh in our day to day. It is about the inability to put ourselves in the other person's shoes. When we are from a position of calm, it is difficult for us to identify the level of anger, frustration or negativity in others. From serenity, and keeping cold logic aside, you have to make an effort to understand how that person feels, especially as a result of their actions and / or words.
Not understanding how others feel affects us in making decisions. In particular, if we take them, we will not even know how they will affect ourselves later. On a different level, it is easy to fall into the error of believing that we will know how we will find ourselves emotionally in the future. It is important not to plan big projects or eventualities without taking into account that we will not always be with the same motivation and state of mind.
The Imposter Syndrome
Complex to assume, but it happens more often than we think. The Imposter Syndrome lies in the idea that you yourself are not worthy of something. It has ever happened to all of us that we attribute our achievements to chance, luck, the trust that third parties have placed in us, etc. Although it is true that we may have tried hard, and even be really experts in what we dedicate ourselves or have achieved, there is a time when we are afraid. The fear that it will be discovered that we are in a position that does not belong to us.
You actually have to assume that a part of your success can be attributed to luck at times. And for that reason we should not feel bad about what has been achieved. The consequent problem of adopting this thought is that of undervaluing ourselves, and doubting our abilities. The moment this begins to occur, we will begin to think that we are not capable of achieving more things, and it will be then where the lack of motivation will come and the bad decisions will appear. And this is not true, you cannot doubt yourself.
In the world of business, economy and finance, as in our life, common sense will always be our best ally. Knowing our strengths, virtues, capabilities, will help you know how far you can go. But in the end, there will be something more important, knowing your own limits. Know your limits, and you will know everything that for the moment you can cover.