In our quest for gaining in-depth knowledge of what risk is, we have started by reviewing how we perceive it, and why each of us has different concepts of what risk is and different perceptions about how much it affects our decisions.
This is the seventh post on how our conception of risk is rooted in something that goes beyond the economy or finances, and we have extended our perspective to disciplines like anthropology, sociology or psychology.
Before moving on to other sciences, such as neurology, pharmacology or physiology, we will take a look at one of the central issues of psychology: The Self-Affirmation Theory.
From a psychological point of view, personal integrity is in poor health. We constantly face situations or people who question our worth. These “threats” to the integrity of our Ego have multiple responses which can significantly condition our own perception of reality.
The Self-Affirmation Theory (there is a very interesting paper on this subject, “The Psychology of Self-Defense: Self-Affirmation Theory, Sherman 2006, link here) suggests that the individual responds to threats through a protection system based on the reaffirmation of the Ego. This reaffirmation, which can be very beneficial psychologically for a person’s mental stability, can however bring in its wake bad habits or weaknesses that gave rise to the threat, resulting in a heroic defense around the causes of the threat.
In this situation, the “Know thyself” that appeared on the Oracle at Delphi is vital to be able to “successfully survive ourselves”, i.e. the psychological defenses we erect against external threats.
Let’s start by defining the “Ego”. Our identity is complex and is composed of different realities. We can list the following:
- Individual roles: we are the tasks we perform, and the attitudes we adopt in front of others
- Values: set of principles and axioms that define our ethics
- Social identity: how we present ourselves to others, how they perceive us and our degree of interaction with society
- Belief systems: religious and philosophical
- Goals: we are what we want to be, or the goals we want to reach, and these are the measure of ourselves
- Relationships: family, affective, social, work
So any threat to the Ego will come from one of these categories. We feel threatened when our religious beliefs are questioned, when the validity of our goals is called into question, when friendships are lost or the result of our hard work is not rightly appreciated, to name a few examples.
From a more economic-financial point of view, we can feel threatened when our business management decisions no not achieve the desired goals, when we lose money on the stock market, when shareholders do not appreciate the presumed relevance of our strategic decisions.
Our psychological system reacts by protecting us, and it can basically react in three different ways:
- Accepting the mistake
- Denying the threat
- Reaffirming and reinforcing other aspects of the Ego not related to the threat
Spoiler: There is no right answer. All can be right, depending on the circumstances.
Let’s take a look at several examples to understand how our defense mechanism works. In this way, by knowing ourselves, we will be able to recognize ourselves in situations of stress, and improve our responses in a constantly evolving environment.
Accepting the mistake: we recognize the threat as the result of a weakness. We fail an exam, our boss criticizes the result/quality of our work, a friend scolds us for a certain behavior. In these situations, we examine ourselves and we admit that we were wrong. This attitude has pros and cons. The pros are that we have a highly versatile personality. We can adapt to changes easily and better learn from each mistake. The famous “Be water, my friend”. We also project an image of humbleness and recognition before others that is strongly related to empathic attitudes that are so highly appreciated in today’s society. Cons: Not always are the threats real, or a result of our own mistakes. It may be that the one who generates the threat is wrong, and we change for the worse. Also, recurrent acceptance of the threats can weaken our personality. We can end up losing our critical spirit and own judgment.
Denying the threat: a classic. Everybody is wrong, except for me. A leap in the dark. Extremely useful when, in our opinion, we believe that the threats are mistaken. There are many examples of the tough beginnings of great business leaders around the world, when nobody supported them, at best, or were advised to give up their effort. Pros: Perseverance strengthens the individual, believing in ourselves and in our abilities. All stories of overcoming obstacles start with multiple threats to the Ego. Cons: Obvious. Heading for the cliff, rejecting all warnings and alerts. Turning an obsession into a goal that is unattainable, or attainable at a disproportionate price. For example, Captain Ahab, or the famous Pyrrhic victory.
Reaffirmation of other aspects of ourselves: This is a very interesting response. We react to a threat by putting into perspective our presumed weakness with other areas of our Ego where we know that we excel. The classic example of the Hollywood films: the wimpy kid at high school who, given the impossibility of becoming the captain of the football team, strives to get the best grades and thus be able to go to a prestigious university. The recent film The Theory of Everything, that portrays the early years of Stephen Hawking, reflects the effort to excel intellectually, in a situation of declining physical condition. From the business viewpoint: In view of the losses caused in some lines of business, the company decides to focus on its core business and improve its competitiveness around what traditionally has been represented by the company’s brand.
As we have seen, each response can be right or wrong depending on the circumstances, and that’s the delicate balance we must always look for. Because, frankly, on many occasions we will make a mistake by giving a response to our threats. And only with a reasonable alternation of good decisions and mistakes will we be able to build in the long run a happy and vital professional career. And that will require a good knowledge of ourselves, combined with a good amount of luck.
Economist, BBVA, Madrid (Spain).