By saying that it is hard being human I am not referring to the day to day minutia of working, paying bills, interacting with others or the collapse towards entropy that we call ageing. Rather I am referring to understanding the world in a logical, data driven manner. Over the years I have come to believe that the default setting for humans is one of irrationality. Thinking is hard for us and this has never been more apparent or obvious since the rise of social media which has given free carte blanche to any manner of idiots to express their opinions. We seemed to be trapped in an inescapable vortex of poor decision making based upon either scant evidence, poorly understand evidence or in most instances no evidence at all.
You would think that trading would be immune from this sort of silliness but apparently not. For example, a large part of the trading world is addicted to astrology even though astrology itself has been continuously debunked as simple nonsense. Whilst in Malaysia I even sat through a presentation on how markets could be predicted using sun spots…WTF?
My very simple take on this is that humans are caught between two compounding factors. Some are simply not smart enough to understand the world, so they retreat into magical thinking. But some are smart enough to understand the world but are caught by their own irrationality. I am quite certain that many of the people who believe in astrology simply don’t have the cognitive horsepower to understand the reasons why it doesn’t work. Whereas, those who are smart enough to understand why it doesn’t and cannot work retreat into a variety of cognitive biases to defend their magical thinking despite the wall of evidence against them. For such people it is a matter of faith their own bias matters more to them than fact. Intriguingly though this sort of behaviour is not limited to pseudoscience – medicine is a flourishing hotbed of push back against evidence that contradicts traditional thinking. The push towards more evidenced based medicine is uncovering that large numbers of treatments provide no more benefit to the patient than what are known as sham treatments. Despite this growing body evidence against procedures as diverse as knee arthroscopy and the use of stents for mild heart conditions behaviour patterns in doctors don’t seem to change.
The question is what can we do about our predilection for getting in our own way? My snap answer would be not that much, but this again is betraying one of my biases since I has spent an hour trying to explain the lack of logic in a fellow professional thinking and despite images and references and those things called facts, I couldn’t get past their belief system. They were trapped in their own narrative. If I take a deep breath and step back and offer a more rational sensible and thoughtful summary, I would offer that checklists beat people. Whenever LB and I undertake a new project be it a new trade or business decision we generate a premorterm, that is a list of things that can go wrong and what action flows from things going wrong. This sort of behaviour helps short circuit optimism bias which is the bane of most traders’ lives – before you take a trade you ask yourself the simple question of what do I do if I am wrong?
However, I really dont think there is much you can do about people who have faulty software and for whom conspiracy theories, UFO’s, crystals, psychics and angels are their raison d’être. For such people to challenge such things is to challenge not only their world view their sense of self. In many ways’ traders are the same – we act to defend our egos not to maximise our profitability. And this is perhaps one of the most illogical things about the majority of traders, most dont trade for profit they trade for entertainment.