Behavioral finance FAQ / Glossary (Narcissism)

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Narcissism, narcissist

06/10i + See hubris, overconfidence,
behavioral public
economics / finance,
behavioral corporate finance, guru

Beautiful oversized ego?

Or just feeling a bit above other people?

Definition:

Narcissism is a self-centered bias based on excessive
admiration, love and
confidence in oneself
that makes blind to realities.

Although self-love and confidence can be legitimate motivators
for action, they can drift into - light or heavy, benign or destructive,
joyful or sinister, generous or greedy, charming or rabid -
forms
of narcissism.

Who catches the virus?

Narcissism might strike occasionally or permanently people in all social positions.

But it tends to affect, for good or bad, and with testosterone added,
a higher proportion of people with leading positions and status,

We can see examples in politics, academia, medias, business,
finance, religions and ideologies.

Not to neglect mafias of all kinds, as fertile providers of such
"domineering" phenomena.

Whatever the area, of course only a minority catches the most acute and
wildest forms.

But the tendency of human beings (and groups of human beings), to consider
themselves above others
should not be neglected.

The case of extreme narcissism (egomania)

Master of the Universe and illusion of total power.


This article focuses on the extreme form of narcissism also called egomania


It affects a person in whom it becomes a total primacy
of the
ego that drives most actions.


It is then an excessive and abusive attitude and habit, even a mental pathology,
disorder or perversity,

It can be analyzed as a mental (inebriating) cocktail of: :

Permanent and excessive self-admiration, overconfidence, 

pride, and, to take an external aspect (that might be disguised or 
hidden), arrogance,

Utter selfishness, the primacy on one's own satisfaction,

whatever rationalizations are given about behaving for the care of 
other people,

Blind magical thinking that gives an illusion of control, of 

unlimited power (hubris), invulnerability and superiority.

As it has affinities with power, as seen above, narcissism plays a key 
part in
political, social and economic / financial decisions.

Frightening isn't it?
Now you know what caused some of the disasters seen in History!

General consequences

Blind decisions under addiction to the Self.

In its acute and pathological form, narcissism:

Makes the person blind to a sound appreciation

of situations and gives it the illusion of being invincible.


Makes it feel that he has rights above those of the other
    mortals,

Including the right of misbehaving and imposing its fantasies upon 
others.


Even if it facilitates decision making and reactivity,
  
brings often disastrous individual and

social consequences.

This can be the case, as seen below, in management, business and
finance.

A narcissist tip: if you are a narcissist, love yourself enough ...to
control what your narcissism can do!

Origins of narcissism

Feeling blessed by the gods
and thus considering them as obedient pets.

The causes of this perverse bias differ depending on the people it strikes.

It might be ingrained or acquired since infancy.

Also, although that might be pop psychology interpretations, it can
sometimes be triggered by:

Either earlier successes ,

People with a feeble mind who reach success and power can 
feel there is no limit to what they can do and impose.

They would not investigate if their prowess are due to random
luck
(yes,  it can save the day !), or to a
favorable situation
independent of their abilities (see self attribution, hindsight
bias...),


Or adulation by partisans and aides (cronyism),


Or a subconscious quest for compensation /

revenge from earlier life problems. It can even be a
conscious self-serving rationalization.

Yes, even the so-called "inferiority complex", and the envy
and frustration
it brings, might lead to a behavior of superiority
and the will to dominate other people, even at the price of
creating havoc.

Effects of narcissism
     in leadership, politics, business, finance

Where there is power, narcissism is not far.

Nobody is vaccinated against narcissism, but it tends to strike
in priority:

On the personal side

Individuals who reached a leading social 

status.(see above a - non limitative - potential list).

Narcissism can change public or corporate leaders, however
smart, adaptable and open-minded they were at the start, into
incompetent and self-centered managers, dogmatic gurus and
damaging tyrants.

Narcissist leaders might make bold and successful decisions
outside the trodden path.

But those decisions might sometimes put the business in danger,
and bring also damages on the world around.


Or on the contrary, people seen as losers by others, or
   who feel so, and seek revenge, even at the price of creating
   havoc.


On the collective side

Sometimes a whole mass of people (mass hysteria).

Massive social narcissism is the stuff that explains:

* Some wars, invasions, persecutions,

* Some spirals of economic despair (see above inverted 

narcissism as a mode of revenge) or economic exuberant
illusion.

Some groups , organizations, sects, clans, gangs and 
    other self-proclaimed elites also,

They tend to feel superior to common mortals and consider
with arrogance that they have rights on them.

See "overconfidence" for the specific effects on financial markets.

As seen in the history of spectacular losses in asset trading, they are
often caused by a single "rogue trader" who got carried away while
left uncontrolled
by its institution that was sometimes blinded by some of that trader's
earlier successes.

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