When I was an advisor, my most frustrating experiences were with clients who had great confidence in their investing decisions, even though they didn’t understand basic principles of finance.

Here’s one of many examples:  A prospect told me he could never sell his GE stock (which accounted for most of the value of his portfolio) because of a promise he made to his deceased father, from whom he inherited the stock.

I did my best to discuss the benefits of diversification.  I explained uncompensated risk.  All to no avail.  I couldn’t budge him.

I didn’t know at the time, but he suffered from “belief superiority.”  I probably did as well.

What it is

“Belief superiority” is the belief that your views are superior to other viewpoints.  Those who feel this way believe they are better informed about the topic than others.

Notwithstanding their confidence, there’s evidence their belief is not justified.

A gap

A study of those who believe they held superior beliefs on four political issues, published in the Journal of Experimental Social Psychology, found significant gaps between their perceived and actual knowledge.

More troubling, when given an opportunity to learn more about the subject of their beliefs, these individuals “frequently favored agreeable over disagreeable information.” This explains why it’s so difficult to change their mind.  As a group, they aren’t interested in contrary views.

Conversely, those who didn’t believe they held superior beliefs underestimated the depth of their knowledge.

Dealing with belief superiority

Dealing with those who think their views are superior can be challenging.  The study found evidence that when those holding these beliefs get feedback indicating their knowledge of the subject was lacking, they were more amenable to seeking out objective information, although this finding was not conclusive.

Using this information, I might have been more successful with my clients if I indicated that the data was inconsistent with their belief and then asked: Would you find it helpful to read a couple of studies on the benefit of diversification?

A shared bias

Ask yourself whether you may also have belief superiority.  In retrospect, I wonder if I presented data in such a way as to make it seem more predictive than warranted, without allowing for “black swan” outcomes.

Regardless, you now know how to recognize “belief superiority” in your prospects and clients…and in yourself.

Resource of the week

This article discusses the study referenced above on “belief superiority.”