FalseConfidence

`Confidence' is a tricky word.

Sometimes people use it when they mean `bluster', ie. acting confident. Since that faith may not bear out, this should be rightly termed false confidence. Other times they mean something like `fortitude', where some merit undergirds.

The even trickier part is usually the person does not know which nuance is at play. One sees this all the time, however most recently I was helping someone with their investment statement, and I was trying to concretize the typical CFA concerns, ic. especially risk tolerance.

Most of the time when an IPS blows up, it's because at least one side did not actually understand the risk profile or tolerance, ie. what was stated in the IPS turns out to be bluster.

So how do you move people away from bluster and closer to fortitude?

An easy gauging exercise is to pick some polarizing opinion (eg. Trump sucks or rocks), and ask them what they would have to see for them to change their mind. The harder it is for them to see possible alternate realities, the smaller the investment should be (perhaps zero), as the quickest antidote for risk is to just limit exposure to a conservative estimate of what they can afford.

Provided they passed the gauge, then begins the hard work of inventorying their beliefs about themselves and the world, and then running likely scenarios that would impact their financial security. Once that has been concretized, then the fan diagram for the investment yields a yes/no binary decision.

In terms of general applicability: for any thing you believe true, what plausible alternates exist, and what do you have to see in order to promote/demote them, including your current belief?