Here is an interesting piece from one of my favourite reads, Tim Harford
I know his pieces are interesting 'cause I usually read to the end of them!
A few years ago, Guy Mayraz, who is now a behavioural economist at the University of Melbourne, conducted a test of wishful thinking.
(The University of Melbourne? I like this guy already! :-D )
He divided experimental subjects into "farmers", who benefited from high wheat prices, and "bakers", who profited when wheat was cheap. Then he showed them historical charts of wheat prices and asked them to make forecasts.
Mayraz paid a bonus for accuracy, yet the farmers systematically predicted higher prices than the bakers.
This is wishful thinking in its purest form. Whether engaged in a tough negotiation, or simply trying to predict the future, we find it hard to distinguish between what is true, and what we wish was true.
There is more at the article, that's just the conclusion. It occurs to me that it may very well be applicable to traders (mea culpa).
Well, it doesn't just occur to me, its an indisputable fact. And, while its easy to point the finger at others practising this 'wishful thinking', and indeed necessary to avoid blindly accepting research uncovered as part of active confirmation bias, its probably even more important to recognise the tendency to this yourself.
Its a strong desire, and can be very damaging to account balances; we hold onto wrong positions as we search for 'evidence' to support our pre-existing views.
