It is 2023 and of course, I have to return to one of my favourite topics, the investment behaviour of narcissists. Like a dog returning to its vomit, let’s look at a study by Tim Jaeger and Tina Steinorth from the University of Hamburg.
They looked at the investment behaviour of narcissists and people who score highly on the dark triad (narcissism, psychopathy, and Machiavellianism). The interesting feature of their experiment is to ask people to play a game where they get a fixed endowment that they can either invest in a safe asset or in a risky asset. Whatever they have left after they invest in the safe and risky asset they can take home. But here is the trick: the safe asset in their experiment has a lower expected return than the safe asset. For example, if you invest $1 in a risky asset, you have a 10% chance of winning $9 and a 90% chance of winning nothing. Thus, the expected return of the risky asset is $0.9 while the safe asset pays $1 for every $1 invested.
Guess what happened? You got it, narcissists and people scoring high on the dark triad on average invest 2% more of their money in the risky asset. Even though the outcome of the risky investment was completely random, the narcissists believed they would get lucky.
Of course, as we have seen before, narcissists are people who take unreasonable risks or break the rules to get better payoffs. So it’s no surprise to me to see narcissists flock to high-risk investments even if the expected return is worse than a safer alternative.
Over the last couple of months, I have been reading a lot of reports and watching a lot of videos of crypto promoters and people who became billionaires by launching crypto exchanges and crypto hedge funds. All of this was obviously triggered by the spectacular meltdown of FTX and its knock-on effects across the crypto space. But when watching these videos, I could not help but think that most of these people looked like extreme narcissists promoting risky investments that have a lower return than safer alternatives.
I am of course not qualified to diagnose anyone, especially not when watching a video of the person. But it seems likely to me that the crypto space is overpopulated by narcissists, psychopaths, and Machiavellians. And since I have a no-jerks rule in life and try to stay away as far as possible from jerks, that makes me want to stay away from the crypto space even more.
On a similar topic, what would be the psychological profile of investors who knowingly (and intelligently) pursue high risk strategies or businesses? Would some of the great entrepreneurs or investors of our age score highly on measures of the dark triad?
Bitcoin is different to crypto as more low time preference people like the asset. I personally like a hedge against idiots (narcissists, psychopaths, and Machiavellians) blowing up the financial system due to reckless fiscal/monetary policy. Still might not pay off and great if it doesn't but that isn't how insurance works :)