Avoid ‘Lucky Fool Syndrome’ To Make Better Financial Decisions

We all have a unique set of skills that contributes to our success — but sometimes we just get lucky. Personal finance author Carl Richards explains that “lucky fool syndrome” can cause us to make poor decisions, especially when it comes to investing.

Picture: Ed Schipul

The psychological name for “lucky fool syndrome” is self-attribution bias. When things go right, we attribute it to our skills. When things go wrong, we blame it on bad luck.

The problem with this: when we discount the role of luck in our accomplishments, we risk overestimating our abilities. And when we chalk up our failures to luck, we risk not learning from our mistakes.

This behaviour can be risky with many money decisions, but Richards points to investing. He references the book Fooled by Randomness, in which Nassim N. Taleb describes “lucky fools”:

Lucky fools do not bear the slightest suspicion that they may be lucky fools — by definition, they do not know that they belong to such category. They will act as if they deserved the money. Their strings of successes will inject them with so much serotonin…that they will even fool themselves about their ability to outperform markets.

To avoid this behaviour, Richards suggests making an honest assessment of your skills. With investing, it helps to ask the question: Can I lose on purpose? He notes that losing on purpose isn’t as easy as it seems, and it takes some skill. For more information on “lucky fool syndrome”, check out the post in its entirety.

Avoiding ‘Lucky Fool Syndrome’ [Behaviour Gap]