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Bias Series Part Four – Attentional Bias

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Consider the chart below.

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Leaving aside my thoughts about organic food the chart deliberately confuses causation with correlation. Such confusion is the bane of statistician lives and it plays a role in our investing since in many ways it is the bedrock upon which people build their stories or rationalisations about he market. During any given news broadcast about the market a reason will immediately be given for a given event occurring. For example, if the All Ords goes down today a reason will be found to explain why this happened. This  event occurred and the market went down, therefore one caused the other when in actual fact the real reason the market when down might simply be noise.

The same is true on a micro scale with our own trading – traders often confuse their own actions with a random outcome. This is why we generally let machines do testing for us – we are profoundly unreliable at viewing data in a nom biased way.

Category: Trading PsychologyBy Chris TateJanuary 13, 2014

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