“The reality is too painful to bear, so you just distort it until it’s bearable. We all do that to some extent, and it’s a common psychological misjudgment that causes terrible problems.” –Charlie Munger
This article is part of a multi-part series on human misjudgment by Phil Ordway, managing principal of Anabatic Investment Partners.
Munger recalled the mother whose son disappeared while flying off an aircraft carrier in the north Atlantic, or the mothers of obvious criminals.
Consider something short of full denial – call it partial delusion – that can be just as damaging. It often ties to cognitive dissonance and confirmation bias. Also, the impossibility of proving a counterfactual is often used as a straw man argument but it can actually be a very useful tool for problem solving.
There are many types of denial: denial of fact, denial of responsibility (blaming, minimizing, justifying), denial of impact, denial of chronology or preceding events. But they all get back to the original principle of being unable to accept reality as it is. We all play the ostrich at times and bury our head in the sand rather than face the ugly world around us.
“The absence of definite information concerning the outcomes of actions one has not taken is probably the single most important factor that keeps regret in life within tolerable bounds….We can never be absolutely sure that we would have been happier had we chosen another profession or another spouse…. Thus, we are often protected from painful knowledge concerning the quality of our decisions.” -Danny Kahneman, The Undoing Project
Denial seems to be having a resurgence. “Truthiness” and “alternative facts” and “fake news” may be obvious tools of political manipulation, but they’re also ways for ordinary citizens to cope.
The Penn State football scandal stands out. For many years a handful of very powerful people simply denied the problem, and now the former president of the university and a few others are going to jail. And legions of the famously loyal fans insist it was some sort of “us versus them” witch-hunt. These are normal, sincere, often intelligent and well-meaning people who committed no crimes of their own, but they’ve invested some portion of their lives – from the time they’ve spent publicly supporting the football team all the way up to the career academics whose entire lives revolve around the school – and denial has swamped all other factors.
“The first principle is that you must not fool yourself, and you are the easier person to fool.” – Richard Feynman.
 Richard Feynman: Surely You’re Joking, Mr. Feynman!
About The Author: Philip Ordway
Philip Ordway is Principal and Portfolio Manager of Anabatic Fund, L.P. Previously, Philip was a partner at Chicago Fundamental Investment Partners (CFIP). At CFIP, which he joined in 2007, Philip was responsible for investments across the capital structure in various industries. Prior to joining Chicago Fundamental Investment Partners, Philip was an analyst in structured corporate finance with Citigroup Global Markets, Inc. from 2002 to 2005, where he was part of a team responsible for identifying financing solutions for companies initially in the global power and utilities group and ultimately in the global autos and industrials group. Philip earned his M.B.A. from the Kellogg School of Management at Northwestern University in 2007 and his B.S. in Education & Social Policy and Economics from Northwestern University in 2002.
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