How many times have you said, "This time is different?"
I said it, usually to myself, way too often. Yet, almost invariably, it was never different. I'm sure I am not the only one, so I quickly searched online and discovered that it is a widespread problem.
It is a syndrome.
Two economics professors, Carmen M. Reinhart and Kenneth S. Rogoff, wrote a book about the damages created by this "this-time-is-different" syndrome.
"The essence of this-time-is-different syndrome is simple. It is rooted in the firmly held belief that financial crises are things that happen to other people in other countries at other times; crises do not happen to us here and now. We are doing things better, we are smarter, and we have learned from our past mistakes. The old rules of valuation no longer apply." —Reinhart & Rogoff (2009)
The "this-time-is-different" syndrome is a cognitive bias that leads us to believe that past adverse outcomes won't apply to our current situation. It's the seductive illusion of exceptionalism, where we convince ourselves we are somehow immune to the rules that govern others. An illusion that can cloud our judgment and lead to costly mistakes. As Reinhart and Rogoff proved, this syndrome can be hazardous in financial markets, but it can lead to painful crises in all fields of life.
Why do we fall prey to this bias?
There are several reasons. A few that come to mind are:
Overconfidence: an inflated sense of our abilities and knowledge, believing we can outsmart negative consequences.
Selective Memory: We tend to remember past successes more vividly than failures, creating a skewed perception of our risk tolerance.
Desire for Novelty: We crave new experiences and might be willing to overlook warning signs when pursuing something exciting.
Whatever reason makes us confident this time is different, the consequences can be catastrophic.
So, how do we avoid falling prey to this bias?
Here are a few ideas, but if you have more, please share.
Acknowledge Your Biases: Recognize your susceptibility to this cognitive bias and actively challenge your assumptions.
Learn from History: Study past crises and failures to understand how they unfolded and identify common themes.
Plan for the Worst: Develop contingency plans to address problems and mitigate losses.
Seek Outside Advice: Consult with experts, coaches or mentors who can offer a more objective perspective.