The Confidence Map And Making Better Sense Of Our Decisions With Peter Atwater
Aug 15, 2023
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Peter Atwater, author of The Confidence Map and adjunct professor at William & Mary, discusses the role of emotions in decision making. He introduces the confidence map, which plots experiences across four boxes - comfort zone, passenger seat, stress center, and launch pad. The speakers explore the link between confidence and giving up, the impact of abundance and scarcity in investing, and reflect on growing up in different countries. They also discuss the impact of the horizon map on decision-making and confidence.
The Confidence Map consists of four quadrants that represent different mixes of certainty and control, including the comfort zone, passenger seat, stress center, and launchpad, and individuals can move between these quadrants depending on different subject matters and moments in life.
Confidence is crucial in inspiring individuals to think about and plan for the future, and low confidence can hinder their ability to learn more about personal finance and investing.
Deep dives
The Confidence Map: Visualizing Confidence
The Confidence Map is a framework that aims to visualize confidence, which is often talked about but not deeply understood. It consists of two critical feelings: certainty and control. Certainty refers to knowing that things are predictable and that we can anticipate what's ahead, while control means feeling prepared with the tools and resources for success. The Confidence Map places certainty on the x-axis and control on the y-axis, resulting in four quadrants that represent different mixes of these two factors. These quadrants include the comfort zone (high certainty, high control), passenger seat (high certainty, low control), stress center (low certainty, low control), and launchpad (high control, low certainty). The goal for most individuals is to be in the comfort zone, but it's important to recognize that people can move between different quadrants depending on different subject matters and moments in life.
The Impact of Confidence on Saving and Financial Decision-Making
One of the reasons why people may not save more money or make proactive financial decisions is the lack of confidence. When individuals lack confidence, they tend to focus more on immediate problems and feel vulnerable. This mindset leads them to prioritize addressing immediate needs instead of considering long-term financial goals, such as retirement. Confidence is crucial in inspiring individuals to think about and plan for the future. Additionally, low confidence can hinder their ability to learn more about personal finance and investing. Daniel Kahneman's work highlights that confidence plays a role in cognitive processing, and when individuals feel vulnerable, their bandwidth is occupied with addressing immediate concerns, making it harder to think creatively and abstractly.
The Psychological Impact of Confidence and Self-Esteem
Confidence and self-esteem are distinct concepts, and individuals can behave confidently while lacking self-confidence. Stories that people tell themselves and others often mirror their mood and reflect their level of confidence. Overconfidence can lead to a misperception of certainty and control, while underconfidence involves perceiving higher levels of uncertainty and feeling powerless. Underconfident individuals tend to catastrophize, which can result in making overblown negative predictions about the future. Building confidence requires regaining a sense of control and establishing small habits and routines that provide a feeling of preparedness. Learning to be comfortable with discomfort and embracing failures as learning experiences are key in developing resilience and navigating confidently through different situations.
The Role of Confidence in Investing and Market Behavior
Confidence plays a significant role in investing and market behavior. Investors' level of confidence affects how deep into the future they can envision and how comfortable they are with uncertainty. When confidence is low, individuals tend to focus on immediate concerns and make impulsive, emotional decisions. On the other hand, high confidence allows for a broader perspective and the ability to make more informed, long-term investment decisions. Recognizing the impact of confidence on market behavior can help investors navigate through fluctuations and avoid making emotionally driven choices. It's important to maintain a balanced approach, avoiding extreme levels of optimism or pessimism, as these can lead to poor financial decisions.
I speak to Peter Atwater, author of The Confidence Map about understanding the role of emotions in decision making. Peter is also an adjunct professor at William & Mary, where we both are alumni.
By plotting our experiences across four boxes, we can gain powerful insight into our decision-making process: Stress Center = low control/low certainty Comfort Zone = high control/high certainty Launch Pad = high control/low certainty Passenger Seat= low control/high certainty
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