Self-attribution - What athletes can teach investors about success and failure

Wednesday, Oct 19 2016 by
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Selfattribution  What athletes can teach investors about success and failure

When it comes to pinpointing the reasons for investment success and failure, being objective is a surprisingly difficult thing to do. Recognising precisely what went right and wrong can help in making better decisions in the future. The trouble is that humans tend to credit their ups and downs to reasons that aren’t always the case. In short, we like to take the credit for success and blame something else for failure. This is a well known flaw called self-attribution bias, and being aware of it could cut the risk of costly overconfidence and lead to a better investment process.

How athletes explain performance

Self-attribution has been studied in a wide range of settings, including investing. But a good place to start in getting to grips with its impact, is sport. Here, psychologists have looked hard at whether winners differ from losers in the way they explain their performances, and it turns out they do...

In his book Sport and Exercise Psychology, cognitive psychologist Aidan Moran says that in contrast to losers, winners in sport tend to credit themselves and the factors they control (like their preparation and practice). On one hand, this is important because it builds confidence in the mind of the athlete. But the problem is that self-attribution overlooks the possibility that the athlete might have won against inferior competitors. As such, the ‘win’ may not be quite as successful as it seemed.

On the flip-side, losers tend to blame external factors and make excuses, which is something you often find with football managers. You end up hearing quotes like: “I personally put our bad start to the season down to the new stadium.”  Or perhaps: “It wasn't our fault we lost the game, I thought it was his fault [the ref’s] on a decision he made not to give a free kick.” Moran says this effort to deflect blame is made to preserve self-esteem and present a more favourable image to others. Yet, blaming others misses the point that poor athletic performance or tactical errors may have had much more influence on the result.

Self-attribution in investing

One of the key takeaways from sports psychology is that self-attribution inflates confidence in athletes, even if it’s unwarranted. The same goes for investors. Research shows that successful investors don’t attribute enough of their success to chance or outside circumstance. In fact, the better they do, the…

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Disclaimer:  

As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested.


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1 Comment on this Article show/hide all

Warranstar 19th Oct '16 1 of 1
5

Ben,
Thanks for this very interesting piece.
Another way to help ensure that over confidence in our own abilities doesn't get the better of us, is to regularly measure our portfolio performance against a suitable benchmark over a number of different time periods. If someone significantly outperforms their benchmark over long periods of time, then it would probably be fair to say that they are not over confident, but rather that their confidence is justified.

As far as processes are concerned, there are lots of shades of grey between the good process and the bad process. I am a great believer in continuous improvement of the process. The triggers for making process improvements can come from a number of different sources. As you suggest, one such trigger can be to examine how we made mistakes in the past. Other triggers for improvement can come from reading how successful investors make their decisions.

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About Ben Hobson

Ben Hobson

Strategies Editor at Stockopedia. My goal is to help private investors learn and invest with confidence through the articles, ebooks and other resources we publish on site. I also occasionally bunk off to interview famous investors at expensive restaurants. I studied History at Aberystwyth University, trained as a journalist and covered business news and corporate finance before settling in as one of the first staff members at Stockopedia.  Away from Stockopedia I'm a mountain bike junkie. more »

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