Cognitive Dissonance – I believe in this, but, did that


Cognitive Dissonance

In psychology, cognitive dissonance is the discomfort experienced when simultaneously holding two or more conflicting cognitions: ideas, beliefs, values or emotional reactions. In a state of dissonance, people may sometimes feel “disequilibrium”: frustration, hunger, dread, guilt, anger, embarrassment, anxiety, etc.
A good example is “The Fox and the Grapes” by Aesop. When the fox fails to reach the grapes, he decides he does not want them after all. Rationalization (making excuses) is often involved in reducing anxiety about conflicting cognitions, according to cognitive dissonance theory.
Cognitive dissonance theory explains human behavior by positing that people have a bias to seek consonance between their expectations and reality.
According to Festinger, people engage in a process he termed “dissonance reduction,” which can be achieved in one of three ways: lowering the importance of one of the discordant factors, adding consonant elements, or changing one of the dissonant factors.
http://en.wikipedia.org/wiki/Cognitive_dissonance

It is the feeling of uncomfortable situation when we hold two different conflicting beliefs. So something must change in order to reduce the dissonance.
When someone does something publicly, which they privately don’t want to do, there exists dissonance between their cognition (what they did not want to do) and their behaviour (what they did). Since they have done it already, dissonance exists which has to be removed by re-evaluating their actions and attitudes to what they have done.
Since the action has been done, and cannot be undone, then the after the fact dissonance pushes us to change our beliefs.
Dissonance increases with the importance and impact of the decision, along with the difficulty of reversing it.
Humans are sensitive to inconsistencies between actions and beliefs.

Cognitive Dissonance in daily lives

  1. We believe we are good to all living beings, but, if we hit a pet or kill an insect, or even having a non-vegetarian food will cause dissonance
  2. Knowing smoking and drinking are harmful but while liking to smoke or drink
  3. Teaching our kids not to lie, but, we lie at times
  4. Knowing stealing is wrong, taking off office supplies from workplace to home
  5. Want to keep up made promises, but, could not complete them
  6. An investor who claims or wants to be a long term buy and hold investor, but, trades too often on impulse
  7. Talking about respecting traffic signals, and at times we cross them in red
  8. Wanting to save more, but, could not control the urge of a fine dinner of few thousand rupees
  9. When we buy a product and if it turns out to be bad, it conflicts with our purchasing abilities, and we console ourselves by trying to find good qualities of the product
  10. You think you are a good stock analyst, but, land up holding a dud stock

Overcoming Cognitive Dissonance

Changing beliefs – that is bringing down the importance of conflicting beliefs
Changing the actions – Take actions that is in line with beliefs
Changing the perception of actions – if actions cannot be reversed

My Experience

As a stock market investor, I have gone through during my early days when I used to read a lot about long term investing, buy-and-hold strategies, advice friends on the same lines, but, flip my investments quite often.

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Filed under Behavioural Finance

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