Trading Psychology : The 12 cognitive biases that prevent you from being rational

Trading is often about how to take the appropriate risk without exposing yourself to very human flaws.
Post Reply
User avatar
Euler
Posts: 16078
Joined: Wed Nov 10, 2010 1:39 pm
Location: Bet Angel HQ
Contact:

Tue Jan 15, 2013 1:19 pm

The human brain is capable of 10^16 processes per second, which makes it far more powerful than any computer currently in existence. But that doesn't mean our brains don't have major limitations..........

http://io9.com/5974468/the-most-common- ... g-rational

User avatar
Euler
Posts: 16078
Joined: Wed Nov 10, 2010 1:39 pm
Location: Bet Angel HQ
Contact:

Wed Jan 16, 2013 11:07 am

Human misjudgement - Charlie Munger: -

http://www.valuewalk.com/2013/01/charli ... judgement/

User avatar
Euler
Posts: 16078
Joined: Wed Nov 10, 2010 1:39 pm
Location: Bet Angel HQ
Contact:

Mon Jun 26, 2017 10:20 pm

The human misjudgement speech has been turned into an animation short.

https://www.youtube.com/watch?v=7-fe01C ... e=youtu.be

foxwood
Posts: 149
Joined: Mon Jul 23, 2012 2:54 pm

Wed Jun 28, 2017 11:01 am

Reading the comments to the article on the OP link I stumbled across this link to a giant list of cognitive biases

https://en.wikipedia.org/wiki/List_of_cognitive_biases

One area to explore that is briefly mentioned at the end of that is debiasing by mitigation and/or modification

User avatar
Euler
Posts: 16078
Joined: Wed Nov 10, 2010 1:39 pm
Location: Bet Angel HQ
Contact:

Wed Jun 28, 2017 12:55 pm

I visited Arizona many years ago to listen to a pre-eminent professor on psychology, but it seems little changes despite awareness of these issues. These things are so entrenched.

It's long fascinated me. People get so stuck in their ways and are unable to change. I'd say understanding, spotting and acting on these biases has helped me massively. But the problem you will face is if you say or do things differently from others, it will be YOU that feels like an outsider. When in fact it's really others acting in a sub-optimal way.

I often feel that the over-riding flaw, is that people interpret the world from their own viewpoint, rather than taking a more balanced view. It's definitely a skill. I got into a row with somebody earlier in the year who was convinced that I'd never traded profitably or if I had, I wasn't any longer. He just couldn't accept what I was saying, which was actually the truth. So I invited him over to examine woth an open no holds barred unequivocal offer. They refused and preferred to make out I threatened them. Such was their bias, they couldn't even take up an open offer.

I'm absolutely convinced that psychology is a major part of my edge, even if indirectly.

People often give an emotional response which panders to these evolutionary biases, it tends to invoke those responses. Just look at social media. It's a full of clickbait that invoke these primitive responses to kick it. Fake news is circulated like the truth, despite the fact, there is little evidence to back it up but people share it because it presses those primitive buttons.

I'd say we have regressed as a species due to social media. But that in itself presents opportunities. Not sure where it leads the populace though. If history is anything to go by, into the hands of the people that control it.

User avatar
Westerner
Posts: 125
Joined: Fri Apr 17, 2009 10:03 am

Wed Jun 28, 2017 1:01 pm

Great post and links Peter. Thank you for sharing.

max_usted
Posts: 131
Joined: Tue Feb 14, 2017 6:07 pm

Wed Jun 28, 2017 3:32 pm

I visited Arizona many years ago to listen to a pre-eminent professor on psychology, but it seems little changes despite awareness of these issues. These things are so entrenched.
I think they're part of the way our brains are wired, as a tribal species that evolved living in small groups. But - evidence that secular western society is leading to changes in personality and IQ via selection, so I believe we're progressing:

http://www.pnas.org/content/114/25/6527 ... .html?etoc
It's long fascinated me. People get so stuck in their ways and are unable to change. I'd say understanding, spotting and acting on these biases has helped me massively. But the problem you will face is if you say or do things differently from others, it will be YOU that feels like an outsider. When in fact it's really others acting in a sub-optimal way.
I have spent at least three months struggling with this. I had a trading style I was comfortable with and would just slap down trades using it with no concern whatsoever and in the craziest situations, whereas I could/can not take on trades in other situations where my rational mind can see a great deal/bargain/offer.

I guess in pre-off swing-trading an equivalent would be people jumping on the back of the swings, and you can then take advantage of the swing-back - ?
I often feel that the over-riding flaw, is that people interpret the world from their own viewpoint, rather than taking a more balanced view. It's definitely a skill. I got into a row with somebody earlier in the year who was convinced that I'd never traded profitably or if I had, I wasn't any longer. He just couldn't accept what I was saying, which was actually the truth. So I invited him over to examine woth an open no holds barred unequivocal offer. They refused and preferred to make out I threatened them. Such was their bias, they couldn't even take up an open offer.

I'm absolutely convinced that psychology is a major part of my edge, even if indirectly.
Ha yes. It's amazing when you consider how people's real, in many cases sacred, beliefs are completely aligned with what is their material and corporate or tribal self-interest. This including myself.

The social scientist that I like most (Jon Haidt) talks about how beliefs "blind and bind". I think that's so true. When you really believe in something (and you have personal investment in that belief, e.g. "I tried to x and failed, so no-one can do x because I am unable to do it"), your mind is extremely effective at completely ignoring, disregarding, rubbishing any evidence to the contrary.

When you feel emotional about something, your mind essentially turns into machine for rationalising whichever behaviour satiates that emotion most. Which is why I imagine successful traders are on the receiving end from less-successful traders. When we fail, attacking people who are successful at the same thing *literally* feels good.
People often give an emotional response which panders to these evolutionary biases, it tends to invoke those responses. Just look at social media. It's a full of clickbait that invoke these primitive responses to kick it. Fake news is circulated like the truth, despite the fact, there is little evidence to back it up but people share it because it presses those primitive buttons. I'd say we have regressed as a species due to social media. But that in itself presents opportunities.
I don't agree that we've regressed due to social media. Sharing and openness should be protected at all costs and leads to progress in aggregate -
Not sure where it leads the populace though. If history is anything to go by, into the hands of the people that control it.
I believe a weak-minded and demoralized populace which feels itself to be unbearably divided will submit to control by the 'priestly caste' (e.g. Corbynistas) - i.e. the same group in society that used to dominate the populace via reliance on Christian dogma, via the extremely powerful force of social taboo, and by constant guilt-tripping etc.

These are the types who love political correctness (taboo and guilt vehicle) and who obsess about media control (Murdoch and Sky) in today's society. They also love anything that demoralizes people, so that means mass migration and their openly co-opting and corrupting various great liberal ideas for solely socially-destructive purposes.

The (most extreme) end results of such groups' 'priestly' ideologies are obviously North Korea, Communism, islam, Christianity and other monotheist, social-solidarity-based ideologies which are so corrupted by fear of social media-style division that all learning is reduced to socialist dogma/a single book, and all public utterances are policed obsessively by taboo-wielding socialist/religious zealots. Which I would hate.

But then, the above drivel all reflects my concerns/political beliefs/emotional state and so must necessarily be blind to other concerns/possibilities -

User avatar
ShaunWhite
Posts: 3420
Joined: Sat Sep 03, 2016 3:42 am

Wed Jun 28, 2017 3:49 pm

Euler wrote:
Wed Jun 28, 2017 12:55 pm
I'd say we have regressed as a species due to social media. ...if history is anything to go by, into the hands of the people that control it.
+1
Interesting piece about Cambridge Analytica on Newnight last night and the military grade psyops used on social media.

User avatar
Euler
Posts: 16078
Joined: Wed Nov 10, 2010 1:39 pm
Location: Bet Angel HQ
Contact:

Wed Jul 26, 2017 2:47 pm


sionascaig
Posts: 161
Joined: Fri Nov 20, 2015 9:38 am

Wed Jul 26, 2017 3:40 pm

Ten types of Humans - brings together latest research from a number of different fields on types of behaviour.

".....is a pioneering examination of human nature. It looks at the best and worst that human beings are capable of, and asks why. It explores the frontiers of the human experience, excavating the forces that shape our thoughts and actions in extreme situations. It begins in a courtroom and journeys across four continents and through the lives of some exceptional people, in search of answers.

Mixing cutting-edge neuroscience, social psychology and human rights research, The Ten Types of Human is at once a provocation and a map to our hidden selves. It provides a new understanding of who we are – and who we can be."

https://play.google.com/store/books/det ... YyCwAAQBAJ

I'm about half way through this book & feeling traumatised - some very scary stories!

Post Reply

Return to “Trading Psychology”

  • Information
  • Who is online

    Users browsing this forum: No registered users and 2 guests