Here’s an interesting article to consider: 8 Subconscious Mistakes Our Brains Make Every Day – And How To Avoid Them.
Its all about the biases we have without necessarily even recognizing, and how to counteract them ... leading to better decisions and better trading outcomes. It’s a long piece and not possible to satisfactorily summarise, but I’ll try anyway:
1. We surround ourselves with information that matches our beliefs
- we surround ourselves with people and information that confirm what we already think
- we subconsciously begin to ignore or dismiss anything that threatens our world views
- this is called confirmation bias
2. We believe in the “swimmer’s body” illusion
- An example is top-performing universities: Are they actually the best schools, or do they choose the best students, who do well regardless of the school’s influence?
3. We worry about things we’ve already lost
- The term sunk cost refers to any cost (not just monetary, but also time and effort) that has been paid already and cannot be recovered… The reason we can’t ignore the cost, even though it’s already been paid, is that we wired to feel loss far more strongly than gain.
4. We incorrectly predict odds
- The gambler’s fallacy
5. We rationalize purchases we don’t want
- Social psychologists say it stems from the principle of commitment, our psychological desire to stay consistent and avoid a state of cognitive dissonance.
6. We make decisions based on the anchoring effect
7. We believe our memories more than facts
8. We pay more attention to stereotypes than we think we do
OK, I give up on the summarizing … it’s a long article!
