Today begins the first of a 4 part series on cognitive traps common to both being in love and managing money.
The notion that personal involvement in a cause can bring about powerful change is largely a positive one. It leads us to volunteer our time, extend our hand to others in need and is foundational to the vision of most any worthwhile volunteer organization.
However positive this impulse may be in most settings, the idea that we can positively change anything we touch can get us in serious trouble in our pursuit of love and money. Committed to improving the lives of those we come in contact with, we may date every fixer upper within a thirty-mile radius of our college campus. Although well intended, this impulse typically results in what dating experts have called “Emotional Vampire Syndrome” – the person trying to impact the change feels drained AND the desired changes seldom take place.
This idea of a “Midas touch” is not just limited to our love lives. Indeed we take this mentality into our financial lives as well, sometimes with disastrous consequences. A famous study found that people were willing to pay a mere $1.96 for a lottery ticket with 1 in 50 odds if they were assigned a ticket randomly. However, if they were able to choose their number from among the 50, they were willing to pay $8.67 for the ticket. The odds remained at 2%, but the participants agreed to pay over four times more if they could become personally involved, because after all, their involvement spelled positive change.
A second type of “I Can Change Them Bias” is overinvesting in products with which we interface daily, irrationally assuming that our own enthusiasm for the brand will trump more fundamental economic indicators. Before the Facebook IPO, the company released a clear-eyed appraisal of their future prospects that included talk of slowing growth, decreasing margins and a user shift to the less profitable mobile platform. What’s more, Facebook was trading at more than four times the P/E ratio of other sexy, highly profitable tech stocks like Apple and Google. They gave us the facts and we ignored them because, “like, we totally check our Facebook feed like five times a day.”
We see a similar effect when people over-invest their assets in the stocks of the company they work for, even after factoring out stock option and other employee incentive plans. The prevailing thought seems to be that we, as one employee among thousands, can singlehandedly change the fortunes of our employer. That you, as HR Generalist III at Coca-Cola are all that stands between the Big Red Machine and financial meltdown. As a free piece of legal advice, if you can singlehandedly manipulate your stock price and invest accordingly, you can also go to jail for it.
So, let the audacious notion that you can change the world inform the way you vote, lead and teach but perhaps not the way you date or invest.