Tag Archives: Financial Future

Thursday Trivia ~ Mimetic Theory and How it impacts your Financial Future!

Rene Girard was a French historian and literary critic. He’s famous for Mimetic Theory, which forms the worldview of many of greatest entrepreneur’s and investors of our generation. One of whom is Peter Thiel, co-founder of Pay Pal and one of the early investor in Facebook. Thiel studied under Girard as an undergraduate at Stanford in the late 1980s. Their relationship stretched beyond the walls of Palo Alto classrooms and became a lifelong friendship. 

Mimetic Theory rests on the assumption that all our cultural behaviours, beginning with the acquisition of language by children are imitative. He sees the world as a theatre of envy, where, like mimes, we imitate other people’s desires. 

Mimetic conflict emerges when two people desire the same, scarce resource. Like lions in a cage, we mirror our enemies, fight because of our sameness, and ascend status hierarchies instead of providing value for society. Only by observing others do we learn how and what to desire. When it goes right, imitation is a shortcut to learning. But when it spirals out of control, Mimetic imitation leads to envy, violence, and bitter, ever-escalating violence. 

Mimesis is the Greek word for imitation. Imitation is not the childish, low-level form of behavior that many people think it is. Since humanity would not exist without it, humans aren’t as independent as they think they are. Early psychologists like Sigmund Freud didn’t take imitation seriously enough. In one essay, Thiel described human brains as “gigantic imitation machines.” 

How the Mimetic Theory impacts your financial future?

It’s no secret that the generation of 50s and 60s were absolute savers. They were raised differently; India’s economy wasn’t opened up to provide for a lot of opportunities. The way a millennials go about their lives, it wouldn’t even be in their imagination. Equity Markets weren’t as transparent as they are today, hence Banks fulfilled most of their needs. Information which is now freely available was once upon a time a scarce resource. Data analytics as a profession is something nobody would have thought of in 70s that one person sitting in front of a laptop or computer has the ability to access tons of data around the world. 

However, one thing doesn’t change between both the generation is the tendency to imitate their peers when it comes to life decisions especially financial ones. That’s why we tend to see mutual funds becoming an important conversation during 2016-2017 when equity markets gave good returns and by 2018-2019, these conversations now turned to having a fixed deposit being the better option. Yet the World’s Biggest Investor – Warren Buffet advises investors to do the opposite which is Be greedy when everyone is fearful and be fearful when everyone is greedy. Yet, almost always it never happens.

The reason is our capacity for imitation is unconscious. We tend to look at our peers such as family, friends, co-workers or relatives making certain financial decisions of their lives which in our rat race are unconsciously imbibed by us.

Our Mimetic nature is simultaneously our biggest strength and biggest weakness.

We tend to get inspired to do great work when we hear about someone who has accomplished so much. Sachin Tendulkar is the greatest influence on the game of cricket. Sehwag first and now Prithvi Shaw have their batting style which identical to the great man. In the world of badminton, PV Sindhu and Saina Nehwal have made a whole bunch of youngsters go out to play a serious badminton game. The world of Investments pays its respect to the dynamic duo of Warren Buffet and Charlie Munger. For starting great businesses, a whole generation is inspired by Steve Jobs and Elon Musk, so much so that they take pride in dropping out of college. 

The motivation to do great work often results in huge monetary gains as well. Higher aspirations right from the childhood combined with almost identical education amongst a circle of friends can result in an impactful career choice. For instance, students pursuing commerce are often interested in CA, CFA, CS or LLB, while students in science tend to pursue engineering. MBA these days has become a cult as a post-graduation degree, regardless of where a student has pursued graduation. 

However, there is another side to this as well. Our Mimetic nature often interferes with our peace when the tendency to match up our lifestyle with others takes the centre stage.

Take for example, the newly purchased or furnished home of your relative or a fancy new car or bike your co-worker brought to office. Looks great isn’t it? They must have made the right financial decision to afford it and we are being too conservative with our finances. For some there could a plethora of thoughts such as they could have also bought a similar house or bike, if only their investments would have grown at a faster rate. The tendency to take investment risk rises in such situations . And it’s this tendency where people tend to fall for tips from star fund managers or investors coming on television or reading about their recommendations over the internet to make quick money. The primary feeling behind this sort of behaviour is to not feel left out especially when the stock moves up.

Competition distracts us from things that are more important, meaningful, or valuable. We buy things we don’t need with money we don’t have to impress people we don’t like. 

These days we tend to see a new dimension to children’s birthday parties. Spending a good amount on parties by giving them in good restaurants are seen as a very important expense by parents just so that their children gain peer acceptance in school. Otherwise, there is a fear of a child becoming lonely or being seen in a poor way. The days of house parties with one large cake, wafers, samosa or vada pav followed with pav bhaji and soft drink are a thing of past now. 

Hence, in many ways spending has seen a rise. So has the need to start budgeting. Yet, it’s often ignored in the hunt for instant gratification. Any new mouth-watering deal that offers 50% discount but not really a necessity is often purchased resulting in over spending for things that we don’t really need.

With the rise in spending, especially discretionary expenses the ability of a family to save is decreasing. Since, imitating our peers make us short sighted, we tend to ignore our future goals of life such as retirement. Will we have enough financial resources to support our life when we are no longer working? Okay, that’s too much into the future. What about having some money aside if in-case there is a lay off and no job is available for the next 1 year? Do we have some money set aside to support us in those times?

We aren’t trying to be pessimistic here, just being cautious. When driving on a highway, it’s better to use a seatbelt which doesn’t mean that there is a chance of an accident.

Due to our Mimetic nature, cons often outweigh the pros. This tendency to imitate often takes away our originality. 

Hence, first and foremost we should ask ourselves whether are we really falling prey to this Mimetic Theory of imitating others? If yes, then specifically which areas of life? Is it to do with having a big house because some relative has it or a fancy car or generating best investment returns even while putting our money at greater risk?

And if you are actively countering your mimetic behaviour then please do share with us your success story. We eagerly await your reply.

– Jinay Savla