THE MYTH OF SELF-ESTEEM
Beginning with the 1969 publication of The Psychology of Self-Esteem, wherein Nathaniel Branden posited that self-esteem was the single most important facet” of personal well being, the self-esteem movement has been one of far-reaching influence. In the 70’s and 80’s anything seen as detrimental to self-esteem was done away with. Gold stars proliferated while red pens gathered dust. First place trophies gave way to awards for participation. In this new milieu, everyone was a winner; everyone was special.
As this well-intentioned movement garnered support, scholarly research followed. In the thirty-year run up to the 21st century, over 15,000 articles were written on the impact of self-esteem on, well, pretty much everything imaginable. However, the results of these myriad studies were often confusing or inconclusive. In an attempt to make sense of the general trajectory of the literature on self-esteem, the Association for Psychological Science asked Dr. Roy Baumeister, an admitted proponent of the theory, to meta-analyze the extant data on the subject. What followed was what Dr. Baumeister would go on to refer to as “the biggest disappointment of my career.”
Of the 15,000 studies taken into consideration, a paltry .013 percent of them (n = 200) met the more rigorous standards for inclusion into the meta-analysis. To begin with, it became apparent that many of the theories about self-esteem that had impacted policy were simply junk science. What’s more, the studies that did pass muster didn’t have much good to say about the construct’s predictive power. Self-esteem did not predict academic or career achievement, nor did it predict drug usage or violent aggression. The biggest finding to emerge from the self-esteem movement was that praise did not predict self-esteem, accomplishment did. Telling someone that they are special is insufficient if they have not worked to earn it. We have an accurate internal sense of when we have earned praise and when we have not. If we feel as though we are being patted on the back undeservingly, it does not move the self-esteem needle one inch.
THE ETHICS OF GIFTEDNESS
One of the thoughts behind the self-esteem movement was, that if you imbued people with a positive vision of themselves, they would be less likely to engage in anti-social behavior. Once again, the reality of specialness deviates quickly from the aspirational theory that underlies it. In fact, research shows that those who think of themselves as gifted, will often do anything to protect that label – even if it is unethical.
One of the most direct studies of this phenomenon involves students who were asked to fill out a “do it yourself” report card that would ostensibly be mailed to students at another school. The children involved were told that those on the receiving end of these report cards would be strangers – they would never meet them nor would they exchange names. By setting up the experiment thusly, the researchers were able to promote a scenario that would allow the children to lie with impunity, if they so chose.
Before filling out the DIY report cards, the kids were either praised for their effort or for being naturally intelligent. While very few of those praised for effort dissimulated on the grades self-assessment, 40% of those lauded for their specialness lied in their self-reports of academic achievement. Again, the shroud of specialness created a pleasant illusion that the students wanted to perpetuate at all costs. Whereas being complimented for being hard working has a wholesomeness that is it’s own reward, specialness is something that is won or lost in the outcomes. The impact of dishonesty is bad enough, but what if this dynamic played out on a grander stage and with infinitely higher stakes?
“A LITTLE JEWISH GUY FROM BROOKLYN”
By now we are all familiar with the story of Bernie Madoff, the financier who brokered the largest Ponzi Scheme in US history. In the case of Madoff, our familiarity with the story may actually be a disservice to an appropriate understanding of his motives. After all, in the minds of “have nots”, wealth is its own reward. Who wouldn’t want a private jet? Who wouldn’t want a $200,000 watch? We assume a very simplistic motive on Madoff’s part – greed. But the reality may not be that simple.
While the timeline for Madoff’s transition from legitimate businessman to crook is unclear, it appears as though he began his career on the up and up. In fact, Madoff’s firm legitimately pioneered the use of computer information to disseminate stock quotes. This technology was so groundbreaking, that after some initial testing it become what we now know as NASDAQ. Despite all of his success, Madoff felt unnoticed and unextraordinary saying, “I was upset at the whole idea of not being in the (Wall Street insiders) club. I was this little Jewish guy from Brooklyn.” For someone who had done so much and went on to cause such trouble, Madoff sounds weak and vulnerable in his account of his early career.
Much like a professional athlete who turns to “juicing” to rise to the top, Madoff began to apply his financial acumen in a more sinister manner, officially defrauding his investors (which included Holocaust survivor charities) of over $18 billion. But as he has said in interviews, it really was never about the money. Said Madoff, “We made a very nice living. I didn’t need the investment-advisory business. I took it on and got myself involved in it, but if you think I woke up one morning and said, ‘Well, listen, I need to be able to buy a boat and a plane, and this is what I’m going to do,’ that’s wrong.” Madoff’s subtext? It was never about the money, it was about respect.
Before long, Madoff’s too good to be true returns did result in the recognition he craved. “The chairman of Banco Santander came down to see me, the chairman of Credit Suisse came down, the chairman of UBS came down; I had all of these major banks” he says, “It is a head trip. (Those people) sitting there, telling you, ‘You can do this.’ It feeds your ego. All of a sudden, these banks which wouldn’t give you the time of day, they’re willing to give you a billion dollars.” Now Madoff was special, but as we have seen, with recognition comes the tenuous task of maintaining the label. Madoff was now a prisoner of his own need to be recognized. He said of living this lie, “It was a nightmare for me. I wish they caught me six years ago. Eight years ago.” Even in the face of this torment, he was unable to free himself from his need to be thought of highly by his peers, the Wall Street insiders who had never really accepted the Jewish kid from Brooklyn as one of their own.
I don't imagine that anyone reading this is prone to or capable of the sort of sinister machinations of Bernie Madoff, but you are very wont to look for shortcuts to financial freedom. I recently sat down with a friend who was considering an "investment" that offered "15% annualized returns with protection of principal." I told her that I smelled trouble from a mile away and that it violated very basic principles of risk and reward. Looking at the pseudo-prospectus more closely, my fears only deepened. This was a scam. I warned my friend as loudly and emphatically as I could, but she ignored my warnings and proceeded with her original plan. I wish her the best but fear that she is in for some abrupt realizations about the laws of financial physics. Overconfidence may not make you a cheater in the same way Bernie Madoff was, but it may make you want to cheat the system in small ways: over leverage, excessive borrowing, a failure to diversify. Get rich quick and get poor quick are sides of the same coin; you're not so special that this rule doesn't apply to you too.
Want more great content on the intersection of mind and markets? Check out The Laws of Wealth by Nocturne Capital founder Dr. Daniel Crosby - HERE.