“[S]elf-deceit, this fatal weakness of mankind, is the source of half the disorders of human life.” (Adam Smith, The Theory of Moral Sentiments, Liberty Fund, p. 158).
Self-delusion can be good in some endeavors. If I overestimate my own athletic prowess, this gives me confidence that—at the margin—might help my performance. From an evolutionary perspective it might make sense.
Yet it has its downsides. A famous Pentacostal Preacher recently died while handling his poisonous snakes in church. He refused medical attention, believing that a true believer could not be hurt.
A dear friend of mine also recently died from handling his poisonous viper. In his case, he knew well what his fate would be if bit. It was not self-deceit, but the attraction to the slithering darlings, that kept him coming back.
As for more self-deceit, a friend of mine in graduate school believed that the correct mix of fruits and vegetables would act as a natural contraceptive. So he had lots of unprotected sex with his wife. Five pregnancies later…. he was still insisting his system worked!
We want to believe what we want to believe. Steve Jobs resisted surgery for his pancreatic cancer, instead trying herbal remedies, allowing time for the cancer to spread.
We do stupid things out of self-deception. Adam Smith not only took the behavioral economic view that humans easily engaged in self-deceit, he went further and argued that self-deceit was desirable.
In the case of the invisible hand, self-deceit is necessary so that entrepreneurs believe that having wealth and status will make them happy. Wealth is thought to make someone happy because it allows you to buy more of the artful conveniences of life. But as Smith explains at length in TMS, it is an illusion.
But the illusion serves a purpose: “It is this deception which rouses and keeps in continual motion the industry of mankind” (p. 183).