A hot-cold empathy gap is a cognitive bias in which people underestimate the influences of visceral drives on their own attitudes, preferences, and behaviours. Human understanding is "state-dependent".
For example, when one is hungry, it is difficult to understand what it is like for one to be not so hungry, and vice versa; when one is blindly in love with someone, it is difficult to understand what it is like for one not to be. An inability to minimise one's gap in empathy can lead to negative outcomes. So what does it means to the finance world?
When I am sipping my coffee calmly in the morning, I am confident (over estimate my ability) that i will not buy anything online today. When that email from Amazon hits my inbox filled with lightning deals for the day and a close out sale, I am not so confident (under estimate my ability) to avoid a shopping-spree. The email (visceral) drives me nuts. Our ability to predict how we will behave when we are in a different ‘state’ vary.
When we underestimate the influence of hot-states (e.g. being angry, in the moment, in pain, or hungry) on our choices, we tend to overreact and overspend. It can be difficult for our cold-state selves to prepare for our hot-state selves. It is so true as our states make us take different decisions and behave differently. If we are aware of this inherent empathy gap we can be more vigilant with our decision making.
When you are calm and collected (cold state), make a budget and a make a system. Make it a point to stick to this system.
When you are in a hot state, promise yourself you will not make any decisions.
Tip: I have a one day/one week rule to make decisions these days (after making several stupid investment decisions). For a big decision, I take one week to respond back. For a small decision, I take one night to respond back. A simple put off of decision making takes the empathy gap into consideration.
🥂to empathy gap!
