THE EMPATHY GAP
There are two states of mind,
The Cold state: when our mind/thinking is calm and comfortable
The Hot state: when state of mind overrun with emotions and act with impulse
Imagine you are at the supermarket on a Saturday, buying ingredients for dinner you are planning to prepare on Wednesday. If you are starving while you are shopping, you will tend to shop more than your average food quantity. This is because when you are hungry, you imagine to be starving on Wednesday too.
In the same way, if you are shopping after a meal, you will tend to shop a bit less. You will feel stuffed and cannot really imagine being starving hungry on Wednesday.
When we are in the cold state, it is difficult to imagine how we will feel and behave when we are in the hot state vice versa. We are unable to empathize with our opposite state of mind. This is called the Hot-Cold Empathy Gap.
In the cold state, we make good investment plans. We plan to buy more when the market is down, stay away from temptations, invest for long term etc. But the “Doer” in us, many a times, in the hot state of emotions does the exact opposite. We give up againsts the greed, fear and other biases that lead to inferior investment outcomes.
The investment strategy is like a diet. If the Doer in us gives up to temptations of junk and undisciplined food habits, we are not getting any healthier.
Nishit Siddharth Shah