Imagine 2 groups of people.
The first group are uncomfortable with positive thinking, motivational posters and tanned gurus with headsets bounding around a conference arena urging people to live their dreams.
Let’s call this group The Realists. These people think of themselves as rational. They believe in science. They don’t believe in Magic Fairydust or Pixie Dreams. They may end up as engineers, accountants, doctors, or actuaries.
In contrast, the people in the audience at the conference arena are believers. They believe that positive thinking can help them achieve their dreams. They may end up as entrepreneurs, strategy consultants, salespeople or CEOs. Let’s call this group The Dreamers.
I think we all have both elements inside us. You could think of all of us falling somewhere on a spectrum with Pure Realist at one end and Pure Dreamer at the other.
If you are unsure where you fall on the spectrum, have a quick listen to a bit of this song:
You can get an idea where you are on the spectrum by your gut reaction. If this was to go “Woo-hoo, yeah baby!…let’s reach for the stars!” , you are probably more of a Dreamer.
If, on the other hand, you experienced an adverse reaction, you may be more of a Realist. Amongst this group, typical reactions include disbelief, queasiness and, in extreme cases, vomiting.
We may change where we are on the Realist – Dreamer spectrum as we go through life. For example, when my daughter was 4 years old, she was a Dreamer. If we put on Reach on in the car driving down to France on holiday, her reaction would be one of pure joy. It was like catnip to her. She would sing along, her little arms would shoot into the air… sometimes even in time with the music.
My daughter is 15 now and she’s going through more of a Realist phase. This involves teenage attitude and disagreeing with just about everything I say (even when I’m agreeing with her). If I were to put on Reach and ask her to sing along, she’d probably punch me in the face.
This highlights how people often move from the Dreamer end of the spectrum towards the Realist end of the spectrum as they get older. Which in the case of my daughter, I’d like to think is a good thing and a sign of growing maturity. In other cases it can be a shame as someone gives up on their dreams and becomes sour, grumpy and cynical.
For many smart people, scepticism is a badge of honour. Nassim Taleb is a good example of this. Taleb has a powerful bullshit detector. When confronted with a new idea, dogma or political ideology, he asks himself not “Can I believe this?” but rather “Must I believe this?“. His default stance is rational scepticism, based on his understanding of how wrong humans have been for most of history.
The Escape Artist is all for rational scepticism but not cynicism. Cynicism seems superficially smart but its a trap because you’ll miss the genuine opportunities that exist in the world.
I’ve been reading the book Flourish by Martin Seligman. Now based on that title alone, Realists may be feeling queasy. But I’m here to tell you that Seligman is actually a Realist at heart. But he’s a Realist that has spent his career gathering scientific evidence for the beneficial effects of being a Dreamer(!).
Seligman presents a compelling case, backed by many studies, that show the benefits of positive pyschology including optimism, community, meaning and purpose, exercise and challenge in life.
Seligman is the lead professor of Pyschology at The University of Pennsylvania. Seligman does not believe in Fairydust and Pixie Dreams. He believes in data-rich longitudinal studies involving thousands of participants measured rigorously over many years. He believes in the scientific method, rigour and statistical significance.
Which makes it ironic that Martin Seligman has ended up being known as the founder of the Positive Psychology movement. As such, he sometimes gets trolled by grumpy people. And, being only human, Seligman can’t resist having a pop at some of those cynics at points during his good-humoured book.
As part of his argument, Seligman includes an interesting section in which he says there are 2 types of reality in the world. When I read this, it struck me as both blindingly obvious and yet totally brilliant at the same time.
Let’s have a closer look at these 2 different types of reality.
1. Objective reality
This reality is independent of what we think. It is the objective truth sought by physicists and engineers. An example would be the laws of physics…like if you jump out of a plane without a parachute, gravity pulls you downwards at a velocity increasing by 9.80665 metres per second.
If you are falling from an aeroplane with no parachute then, to use the correct physics terminology, you are Officially Fucked. You can think positively. You can visualise yourself flying. You can flap your arms. You can Reach For The Stars all you want and you are still gonna end up the same way. Gravity is a bummer like that.
2. Subjective reality
In contrast, the other sort of reality is influenced (and often determined by) what’s in our minds: our beliefs, expectations and perceptions.
In finance, George Soros explains that market prices are a reflexive reality that are strongly influenced by the beliefs, expectations and perceptions of the market participants.
For example, if everyone believes that Twitter is worth $100bn, then it will trade at a market value of $100bn…regardless of whether it will ever make any profits or pay any dividend.
Investor psychology is an incredibly powerful thing. And it influences the real economy, not just market prices. If investors believe that Twitter will survive and make profits, that can become a self fulfilling prophecy. That’s because if investors believe (rightly or wrongly) that Twitter will be a winner, they’ll be prepared to participate in a Twitter equity fundraising. So the lossmaking Twitter gets funded and lives to fight another day. Maybe even long enough to make a profit and pay dividends in future.
This is the version of reality that depends on what people think and it operates in most of our life…including anywhere where the human factor is at play…so that includes work, relationships, fitness, health, personal finance.
Imagine going for a job interview at an investment bank. Your beliefs matter: they influence the outcome. If you believe that capitalism is an evil machine which is oiled by the blood of the workers, that may affect what you wear and the rapport you achieve with the interviewer.
If you wear a blue boiler suit with a hammer and sickle badge, and Fuck the Rich tattooed on your knuckles, the interview is unlikely to go well in my experience.
This is how limiting beliefs bite us. Remember, a limiting belief is a belief that isn’t true but the fact you think it is, holds you back. Your beliefs drive your actions (including your choice of clothes) which drive your results.
Seligman gives an example of a reflexive reality that influences your life: how positively you view your spouse.
Professor Sandra Murray has done an extraordinary set of studies on good marriage*. She carefully measures what you think about your spouse: how handsome, how kind, how funny, how devoted and how smart he is. She poses the very same questions about your spouse to your friends and derives a discrepancy score: if you think more of your spouse than your friends do, the discrepancy is positive and vice versa. If you are a realist and see your spouse exactly as your friends do, the discrepancy is zero.
The strength of the marriage is directly a function of how positive the discrepancy is. Spouses with very strong benign illusions about their other mates have much better marriages. The mechanism is likely that your spouse knows about your illusions and tries to live up to them. Optimism helps love, pessimism hurts it….the literature puts health in the same corner as marriage: pessimism undermines health and optimism promotes it.
*Reflections on the Self-Fulfilling Effects of Positive Illusions in Romantic Relationships: Love is not Blind, but Prescient – Journal of Experimental Social Psychology (1996)
If you’re not married, the same principles apply to your likely success in the mating market as well. If you walk up to an attractive stranger at a party and start chatting, the outcome will be influenced by your belief and confidence going in. Confidence is attractive because its a signal of evolutionary fitness in mate selection.
If you doubt that, lets take a more extreme example: if you never gather up the courage to go to the party or talk to that person in the first place, you’re probably not going to get the result you want.
Human interactions are mostly driven by the dynamics of how the participants feel, think and act. That certainly includes personal finance and financial independence. Your beliefs about money and freedom massively influence your interactions with others and your outcomes. If you believe on some level that its impossible to build wealth because the system is stacked against you, you’re unlikely to save into a pension. The trick is to understand your Money Blueprint and see the blind spots and limiting beliefs that we often have.
On the Path to financial independence, its important to balance your inner Realist with your inner Dreamer. The Realist knows that frugality is vital because you cant invest what you don’t save. But we all need a bit of Dreamer from time to time. Its the Dreamer in us that dares to believe that financial independence is even possible. Its the Dreamer in us that shoots for the promotion or even starts their own business. This is The Magic of Thinking Big.
This implies we should all cultivate some optimism. Or, as Seligman puts it:
I am all for realism when there is a knowable reality out there that is not influenced by your expectations. When your expectations influence reality, realism sucks.
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