The Five Deadly Behavioural Sins for Writers and Self-Publishers (and Investors)

First a bit of disclosure – I got the idea for this from an article in the Globe and Mail Report on Business by Scott Barlow called “The five deadly behavioural sins for investors” (Aug 28, 2014).  It was pitched towards investors (especially those in the stock market) but most of the content seemed to be directly transferable to the writing and publishing game (especially self or small publishers, or as we usually say Indies).  Basically, these are psychological factors that cloud one’s judgement about any activity that can be considered an investment, whether that is money, time or opportunity cost.

It is also worth noting that the comments below refer mostly to writing/publishing decisions based on economic factors.  Naturally, other factors may come into play, such as artistic or personal motivations, to which these comments won’t necessarily apply.
 

Sin Number 1 – Herding

“Herding describes the tendency of investors to unthinkingly follow along with dominant market themes without regard to potential risk of capital loss.”

That’s how Scott Barlow describes it for investors.  For writers and self-publishers, this transfers pretty directly to the tendency to try to follow the latest and greatest thing.  Harry Potter made a billion?  Then it’s about time to jump on the wizards and magic bandwagon.  Fifty Shades of Gray?  Better write some bondage stuff and make sure to include a billionaire.  The Hunger Games cleaned up?  Get into the young adult dystopia market while it’s hot.

The problem here is that by the time something has proved itself to be the latest thing, all kinds of people are jumping on the bandwagon.  With investing, that means the price of the stock is driven up by purely psychological factors, without reference to underlying business fundamentals.  That’s called momentum investing, and you can get lucky if you are early into the game, but otherwise you will probably invest at the top of a market, a position from which it is hard to make any money but easy to lose lots.  With writing and publishing, it means that a whole lot of other people will be flooding the market with similar content, saturating the market.  There is also the risk that you might be investing your time and energy just as fickle readers are becoming fatigued of that subject and looking for something new. 

 

Sin Number 2 – Anchoring

“Anchoring is the term used to describe investment decisions based on the original price paid.  In truth, the market doesn’t care what an investor paid for a stock and the only thing that matters is whether conditions will get better or worse in the future.”

Suppose you buy into a stock at $50 per share.  It has been determined by experience and psychological research that investors tend to anchor the value of the stock at the price at which they purchased.  They think it is “worth” $50, regardless of what the market says. That makes it difficult to get out of a bad investment – one tends to want to wait until it has gotten back up to the anchor price, the price at which it was purchased.  But there is an old phrase – ‘sunk costs are no costs’ – if a stock’s outlook is bad, you are supposed to ignore the price that you paid for it and get out before you effectively sink more money into it by delaying.

In the writing game, that can take many forms.  You might have convinced yourself that a book is worth $5.99, because that’s the price you started selling it at, and therefore it should always be worth that much.  Readers might think otherwise.  Arguably, this is a large factor in the current dispute between Hachette and Amazon.  Traditional publishers think their books are worth $X.XX because they have always sold for $X.XX – Amazon thinks otherwise.

Another form this can take is sticking with a genre or a series well past the point at which there is reader acceptance.  You might have decided this story arc deserves a 5 book series, so you plug away even though it is clear that readers aren’t responding.  At that point, you might be better off re-directing your energies to a new book or series.  Granted, that risks alienating current readers who expect the series to be completed – it can be a difficult judgement call.

Sin Number 3 – Confirmation Bias

“Investors should always be suspicious when they find exactly what they were looking for while researching an investment.  Odds are, the research process involved discarding facts that didn’t fit the pre-existing thesis and overemphasizing the data that supported the original plan.”

 

Suppose you go into your stock-picking persuaded that energy stocks are due for significant growth.  The danger is that you can latch onto articles and stock trends that support your original supposition and ignore everything that says otherwise.  Conversely, after a stock has proved successful, you can cherry pick the reasons that you “know” that made it succeed.  Confirmation bias is very difficult to avoid.  Ideally you should list your hypothesis before investing, pick a few stocks that conform to that hypothesis, track them for a pre-determined time period, then look at the results to test whether your hypothesis worked out in the real world.

In the writing and Indie publishing world, you might find yourself scouring Amazon ranks and reviews, looking for patterns that you expected all along.  Perhaps you have it in mind that males hardly ever read books written by females, so you ignore all evidence to the contrary and miss out on a potentially lucrative readership.  Or, maybe you have published ten books, two of which outsell the others by a wide margin.  Looking at the covers, you might think you see a pattern, so you hire an artist to do all your covers in that style.  If that style happened to be your personal favorite all along, you might be letting confirmation bias guide your thinking, and you could end up spending a lot of time and money on new covers to no good effect.  I suppose that you could call this “leading yourself down the garden path”.

Sin Number 4 – Ego Depletion

“Studies have shown that the brain has limited decision-making resources and the quality of decisions declines with each one made.  (A New York Times profile described the phenomenon as “decision fatigue.”)”

For investors, this means making fewer investment decisions and not second guessing yourself too much.  That is also useful for minimizing transaction costs (each trade costs some money) and stress (obsessing about your money).

When it comes to writing and publishing, I would see this primarily as a warning about excessive re-writing.  Although a reasonable amount of reviewing, proofing and re-thinking is good, too much can be harmful.  Continual self-critique is likely to lead to self-doubt, which can be crippling for creativity. In that sense, “Ego Depletion” seems like a very astute label.  Also, it can lead to a loss of spontaneity in the writing, which can seem like it has been fussed over too much.  The same can be said about the others aspects of publishing, especially covers and blurbs.

In visual arts this is called “overworking your canvas” – when you revise a scene so much that the canvas loses its “bite” and doesn’t take the new paint well.  In data analysis (my day job) we sometimes call this “over-analysing your data” – examining a dataset to the point where you see patterns you should be doubting and doubt patterns you should be seeing.

 
Sin Number 5 – Illusion of Control

“While most people are aware that correctly guessing heads of tails for a coin toss doesn’t make them a genius, investors have trouble distinguishing luck versus skill where their portfolios are concerned.  The short-term path of the market is almost entirely random…”

For investors, this means you shouldn’t take the gyrations of the market too seriously over short time periods.  It takes a while for real patterns to make themselves known.

For writers and publishers, we all recognize the place that luck (or alternatively, random chance) holds in the activity.  Why do good books often tank and not-so-good books sometimes succeed.  Well, part of that is the market – people may simply prefer not-so-good books to literary gems.  But part of that can be luck.

Suppose that a book catches a few lucky breaks early after its release, by randomly attracting a few influential readers who spread the message, either through word of mouth or via the internet.  Suddenly, it has some momentum and that momentum can build on itself.  Before you know it, that book is selling well, perhaps even a best-seller.  It is hard for anyone to chalk up their success to luck, so we naturally attribute the book’s success to its innate qualities.  The writer feels vindicated, perhaps even a bit of hubris comes into the picture.  Competing writers feel downcast about their relative lack of success.  But it might all be due to some lucky breaks at the start.

We can attempt to model this with a simple application of the binomial theorem.  Suppose there are 100 new books in a certain genre that come onto the Amazon market on a given day.  Suppose that each of these new books randomly gets 100 views that first day, and the probability of a sale resulting from any of those random views is 1 percent.  Then, we can calculate from the binomial theorem (excel function binom.dist) that:

·         37 books will have 0 sales that first day.

·         37 books will have 1 sale that first day.

·         18 books will have 2 sales that first day.

·         6 books will have 3 sales that first day.

·         2 books will have 4 or more sales that first day.

So, a couple of those books will have a small advantage over the others.  Big deal, you say.  But what can happen next, with a little bit of extra luck, is something called an information cascade. That basically means that new prospective purchasers, with nothing else to go on, will see the ranking lead that those two books have and be inclined to purchase them.  After all, the crowd must know something.  That adds to the momentum of those one or two lucky books, and a bandwagon effect starts.  If the lucky books are acceptably good, and nothing interferes with the information cascade (i.e. no bad reviews) the momentum can continue to build, eventually leading to a best-seller.  And it was all due to a little bit of luck at the beginning.