Normalcy bias and the end of history

Let’s start with an outrageously personal question.

Ask yourself – how much have you changed in the past ten years? I’m talking about your personal traits and general personality. Are you the same person you were a decade ago?

Do you enjoy the same food, drink the same beer, read the same novels, watch similar kinds of films? Or how about where you live? The people you spend time with? The job you do (or don’t do)?

Are you essentially exactly the same as you were ten years ago? Or have you changed?

If you said, “yes, I’ve changed” then you’re in the majority. At least, according to the results of a study I stumbled across yesterday, conducted by Harvard psychologist Daniel Gilbert. Not only that, I think the results had some pretty profound consequences for us as investors. We’ll get to that in a second.

First, let’s look at how the study worked. Live Science reported:

“…researchers recruited participants online to fill out various personality, preference and value surveys as themselves 10 years prior and as themselves 10 years in the future. Over the series of studies, more than 19,000 people participated.

“In each case, the researchers compared the look-ahead answers of 18-year-olds with the look-back answers of 28-year-olds, and so forth (comparing 19-year-olds with 29-year-olds, and 20-year-olds with 30-year-olds) all the way up to age 68. The older ages always reported changing in the past decade, but the younger ages did not expect to change nearly as much in the future as their elders’ experiences suggested they would.”

In short, the vast majority of people recognise that they have changed a lot in the last ten years. But very few people are willing to project this change forward and understand that they’ll change just as much in the next decade.

I think that’s fascinating. It’s what Gilbert calls “the end of history” illusion – the mistaken belief that even though we’ve changed constantly our entire lives, the person we are today is somehow ‘fixed’ and will stay the same for the rest of our lives. Back to Live Science:

“When a 40-year-old looks backward, they say, ‘I’ve changed a lot in terms of my personality, in terms of my values, in terms of my preferences’, Gilbert said. But when 30-year-olds look forward, they say, ‘I don’t expect to change a lot on any of those dimensions.’”

There’s a parallel to be drawn here between change on a personal level and change on a much wider perspective.

Again, look at how much the world has changed in the last ten, 20, even 50 years. Advances in science, technology and medicine have reshaped the way we live our lives. For instance, the common smartphone is vastly more powerful and complex than computers that filled entire rooms 50 years ago.

Equally, you could argue the levels of debt, welfare and warfare spending, currency debasement and ‘financialisation’ of the world today would shock someone from the ’60s, ’70s or even ’80s.

The point is: deep, often radical change – both good and bad – is a constant. People accept this easily.

Yet, many people fundamentally find it difficult to accept that the world will continue to change in such a way in the next decade. They’re hardwired to believe the world we live in today is the world we’re stuck with. (Or perhaps you’re different – maybe you see big change in the future.)

It’s a kind of ‘normalcy bias’. People fall into the trap of acclimatising so thoroughly to the world of today that they become incapable of comprehending and believing change is coming, even when all the signs are there. Or to put it another way, assuming that because something hasn’t happened before, it can’t or won’t happen in the future.

It’s a dangerous trap to fall into.

On the one hand, it can blind you to a very real and credible threat – like the war against cash, despite the fact the Bank of England’s chief economist has clearly signposted it for everyone.

On the other, it can mean you miss out on incredible, world changing investment opportunities that make some people a fortune.

My focus this week has been on the latter – the opportunities. That’s because next week I’m off to California to spend the week with 60+ different scientists, biotechnologists, futurists, doctors and innovators, as well as 50-odd tech start-ups all developing technologies that could radically change the world in the coming decade.

It’s going to be a fascinating week. Just keep in mind: deep, radical change is a constant in the world. It is not unusual. Remember that when the sceptical part of your mind protests.

Category: Market updates