Narcissism and overconfident investor

Friday 6 March 2020

Adrian Furnham

Narcissists can be energetic, charismatic, leader-like, and willing to take the initiative to get projects moving. But they also make bad managers, and bad decisions, says Adrian Furnham

Nearly everyone in the finance industry knows about the dangers of over-confidence. It is one of the most common and celebrated of the behavioural economics biases.

Overconfident people over-estimate their actual performance. They believe they are significantly superior to their peers, and express considerable and unwarranted certainty in the accuracy of their judgements. Over-confident individuals also have a tendency to believe they have more control over events than they do have; they overrate their work rate and they indulge in wishful thinking. The over-confident investor often makes bad decisions. Amen.

But is it not as simple as being under, over, or having well-calibrated confidence. Like self-esteem: we can have low, average and high self-esteem. We can also have very high self-esteem, a sort of sub-clinical narcissism. What lies beyond that is Narcissistic Personality Disorder. The latter may be more common than you think in financial circles. So how do you spot whether your overconfident investor has a real problem verging on the clinical narcissist?

The Original Myth

Several versions of the myth of Narcissus survive.  They are warnings about hubris and pride. Poets, painters and moralists have all been intrigued with the myth, and have sought to interpret its meaning.  There have also been various illuminating psychological accounts in famous plays, for example Arthur Miller’s (1949) Death of a Salesman being a prototypic story of narcissism.

At the heart of the myth is the caution of misperception and self-love: the idea that inaccurate self-perceptions can lead to tragic and self-defeating consequences.  There appears to be a moral, social and clinical debate about narcissism.  The moral issues concern the evils of hubris; the social issue the benefits or otherwise of modesty; the clinical debate is about the consequences of misperceptions.  

Narcissistic Personality Disorder

In essence, narcissists have a reduced capacity to learn from others or previous experience. They can also have an off-putting outright refusal (ever) to be accountable and hence responsible. Many resist change because they know their way is best. And they have a clear inability to recognise their (manifold) limitations.

Narcissists never seem defensive or embarrassed about their ambition. However, because they are so aware of and comfortable with their strengths, they are easily and profoundly wounded by any suggestion that they have serious weaknesses or shortcomings.

At work they tend to be high-energy, outgoing and competitive.  They seem instinctively drawn to office politics and how to find and use power.  They will charm those in authority or those from whom they believe they have something to gain. Clinically these are some of the symptoms:

  1. Typically reacts to criticism with feelings of rage, shame or humiliation

  2. Interpersonally exploitative: taking advantage of others to achieve personal goals

  3. Has a grandiose sense of self-importance

  4. Believes that their problems are unique and can be understood only by other special people

  5. Preoccupied with fantasies of unlimited success, power, and brilliance

  6. Has a deep sense of entitlement: unreasonable expectation of especially favourable treatment

  7. Requires constant attention and admiration, and compliments

  8. Deep and consistent lack of empathy

  9. Curiously is often preoccupied with feelings of envy

Narcissists are boastful, pretentious and self-aggrandising, over-estimating their own abilities and accomplishments while simultaneously deflating others.  They compare themselves favourably to famous, privileged people believing their own discovery as one of them is long overdue.  They are surprisingly secure in their beliefs that they are gifted and unique and have special needs beyond the comprehension of ordinary people.  

The Paradox

Paradoxically, their self-esteem is fragile, needing to be bolstered up by constant attention and admiration from others.  They expect their demands to be met by special favourable treatment.  In doing so they often exploit others because they form relationships specifically designed to enhance their self-esteem.  They lack empathy being totally self-absorbed.  They are also envious of others and begrudge their success.  They are well known for their arrogance and their disdainful, patronising attitude.  As managers their difficult-to-fulfil needs can lead them to have problematic social relationships and make poor decisions.

They mask this with defiant counter-attacks and rage.  They may withdraw from situations that lead to failure or try to mask their grandiosity with an appearance of humility.  Those diagnosed with Narcissistic Personality Disorder tend to be male.  Narcissists are super-self-confident: they express considerable self-certainty.  They are ‘self-people’ – self-asserting, self-possessed, self-aggrandizing, self-preoccupied, self-loving – and ultimately self-destructive.  They seem to really believe in themselves: they are sure that they have been born lucky.  At work they are out-going, high energy, competitive and very ‘political’. They can make reasonable short-term leaders as long as they are not criticised, or made to share glory.  They seem to have an insatiable need to be admired, love and be needed.  This can appear amusing or pathetic to outside observers.  They are often a model of the ambitious, driven, self-disciplined, successful leader or manager.  The world, they believe and demand, is their stage.

Two Types

Narcissistic people tend to respond differently to problems depending on whether they’re grandiose or vulnerable narcissists. Vulnerable narcissism is marked by excessive self-absorption, introversion and insecurity, while grandiose narcissism is characterised by an exaggerated sense of superiority, extroversion, and domineering behaviour. Both can react with uncontrollable rage when confronted with their deep egocentrism. But vulnerable narcissists may be easier to help than their grandiose cousins

What is most distinctive about the narcissists is their self-assurance which often gives them charisma.  When things go right it is because of their efforts; when things go wrong, it is someone else’s fault.  This is a classic attribution error and leads to problems with truth telling because they always rationalise, and reinterpret their failures and mistakes usually by blaming them on others.

Narcissists can be energetic, charismatic, leader-like, and willing to take the initiative to get projects moving.  They can be relatively successful in management, sales and entrepreneurship, but usually only for short periods.  However, they are arrogant, vain, overbearing, demanding, self-deceived and pompous, yet they are so colourful and engaging that they often attract followers.  Their self-confidence is attractive. Naively people believe they have to have something to be so confident about.

Whilst a 'touch' of narcissism can be good for leaders it can be problematic in the long run particularly if the problem is severe.  Because of their selfishness and egocentrism narcissistic managers are more committed to their own welfare than that of their team or indeed the whole organisation.  

To some extent one can see the narcissistic urges as highly motivational.  If narcissistic managers have a very high need for praise and recognition this may well drive them to work hard to achieve worthy goals.  In this sense they can learn to earn recognition.  But that need can turn to envy, spite, greed and vindictiveness.

The Role of Followers

One really important feature in the narcissism at work scenario is the complicity of followers.  It is said that we get the leaders we deserve.  If our expectations are unrealistic, we tend to get very disappointed.  Often, particularly in situations of difficulty or crisis, people at work have unrealistic expectation of their leaders.  They want them to be superhuman and to ensure success and continuity.

Followers, according to the academic Kets de Vries, encourage two types of behaviours in narcissistic leaders which are very bad for both leader and follower.  First, there is the process of mirroring, where followers use leaders to reflect what they want to see.  Narcissists get the admiration they crave and there occurs mutual admiration.  The problem is that managers can take their eye off the ball in these scenarios, being more concerned with policies and procedures which make them look good rather, than serving the best interests of all stakeholders.  Second, there is idealisation, in which followers project all their hopes and fantasies onto the leader.  Thus leaders find themselves in a hall of mirrors which further decreases their grip on reality.

Where narcissistic leaders become aggressive and vindictive, Kets de Vries claims some followers - in order to stave off their anxiety - do identify with the aggressor.  Followers impersonate the aggressor, becoming tough henchman of the narcissistic manager.   Inevitably this only exacerbates the problem and begins to explain the vicious cycle of narcissistic management failure.

The central question for the work psychologist is how they can set up processes, apart from careful selection, that help prevent narcissistic induced management failure occurrences.

Coaching the Narcissist

Can they be coached? Kets de Vries notes four issues with respect to coaching the narcissist. People with narcissistic tendencies rarely seek help of their own accord:

  1. Usually they only ask for help when faced with a major life crisis, or when their grandiose perceptions of themselves are shaken or shattered in some way. 

  2. The change or cure is difficult, and depends on the severity of narcissistic characteristics and their motivation to change. 

  3. The coaching/therapist working alliance (trust) is particularly important, due to the narcissist’s often fragile sense of self. Any strong form of disagreement is quickly perceived as a personal attack.

  4. Helping the interpersonal awareness of the narcissist is essential; they need feedback about the negative effects of their narcissistic behaviour on others to maintain happy healthy relationships. The coach has to help them to devise strategies for managing their destructive narcissistic tendencies. 

Lessons for the Investment Industry?

One obvious point is not to hire, or later pander to narcissists. Being only interested in themselves, they make bad managers, and make bad decisions. Beware self-confidence, even though we have all been told is desirable for health and happiness.  Look out for signs of vanity at all levels: clothes, cars, speech, social media.

Look at how investment managers explain their success (ability, insight, skill) vs failure (luck, chance). Ask colleagues and subordinates how self-obsessed they are? Ask how they react to successful wise decisions (hubristic boasting) vs disastrous mistakes (blaming others, repressing the facts).

Success teaches us very little –except to repeat behaviours – while failure presents real learning opportunities. 

Beware the good looking, articulate, super-self-confident investment manager who seems to believe their own propaganda. Think pride before the fall. Make sure you, and your business, do not fall under the particularly Machiavellian charm of a narcissist


Adrian Furnham is Principal, Behavioural Psychologist at Stamford Associates in London.  He is also professor of psychology at BI, The Norwegian Business School. He is the author of over 90 books, including The New Psychology of Money. 


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