Self-Serving Attributional Bias – “Don’t confuse brains with a bull market.”
A self-serving bias, sometimes called a self-serving attributional bias, refers to individuals attributing their successes to internal or personal factors but attributing their failures to external or situational factors. This bias is a mechanism for individuals to protect or enhance their own self-esteem. Studies have shown that similar attributions are made in various situations, such as the workplace, interpersonal relationships, sports, and consumer decisions.
As humans we tend to praise ourselves if we succeed, and point fingers to other factors if we fail.
Basically, Self-attribution bias is our habit of attributing good outcomes to our skill as investors, while blaming bad outcomes on something or somebody else.
Self- attribution bias is this tendency of us to ascribe successes to our talent or foresight, while blaming failures on external factors such as bad luck.
Self-Serving Attributional Bias examples
1. A student may credit himself for better grades, and blame his health, or his classmate or even the teachers or school facilities for not getting better grades
2. We might have heard and read about sports coaches’ interviews in the media as to how high their esteem were when their team has won a series of championships, and when they start losing the same coach would attribute failures to other factors. Rarely, few coaches attribute their team failures for themselves.
3. Investors who have made some money in a bull market usually think they are good at stock picking, and even provide tips to their friends. This leads to another bias – the overconfidence bias
4. Most of the Mutual Fund and Portfolio management Scheme managers get caught by this bias and they attribute the performance of their funds to their knowledge and skills during the bull market – but, when compared to benchmark or other schemes, their funds might have not performed better
5. CEO Interviews in the media when they have a series of good quarter – especially when the macro economic conditions are in their favour.
6. Stock market analysts, during bull market keep throwing their analysis on the media and mostly will be true – check them during a bear market or high-volatile market to find their skills.
Overcoming Self-Serving Attributional Bias
1. Rational thinking and self-analysis during each success and failure
2. Accepting mistakes and willingness to learn from them
3. Treat both wins and losses objectively and analyse and record them to check again at a later date
4. When in doubt, discuss with a good friend, or guide who will provide you unbiased opinion on your successes and failures
My experience with Self-serving Bias
Like most investors, during 2006-07, I invested in infrastructure sector and the stocks in this and related sectors were moving up almost on a daily basis. I was extremely happy about my stock picking skills and even suggested some mutual funds and stocks to my friends. When tides turned starting Jan 2008, my portfolio suffered losses, but, fortunately I exited early booking some losses.