Established in 2008, this blog is an independent, common sense, look at challenges and opportunities in sports and financial investing, with occasional diversions as my mood takes me. I am not a tipster, nor is this a Profit and Loss report either. They are boring.
Sunday, 27 February 2011
Cognitive Bias
“To neurophysiologists, who research cognitive functions, the emotionally driven appear to suffer from cognitive deficits that mimic certain types of brain injuries. Not just partisan political junkies but ardent sports fans, the devout, even hobbyists—anyone with an intense emotional interest in a subject loses the ability to observe it objectively. You selectively perceive events. You ignore data and facts that disagree with your main philosophy. Even your memory works to fool you, as you selectively retain what you believe in, and subtly mask any memories that might conflict. Studies have shown that we are actually biased in our visual perception—literally, how we see the world—because of our belief systems. This cognitive bias is not an occasional problem. It is a systematic source of errors. And it is the reason most people are terrible investors.”
Is losing like learned helplessness? The dog that is given electric shock treatment for a period of time doesn't attempt to move to its adjacent area of safety, resigning itself to the prolonged agony of it's perceived helpless situation. The power of the negative mind.
I do have a question though, did he give any suggestions as to how we can protect ourselves from these sort of biases, apart from taking the emotion and passion out of the equation.
I for one believe that to get the best results you need to have a mixture of passion and emotional control (yes I know that is a paradox). You need the passion to drive you on and the emotional control to constantly make the rational decisions demanded by the our discipline.
As to the ratio between the two I would say that it should be between 60/40 and 70/30 in favour of emotional control.
I have had a life-long interest in sports and after studying Pure Mathematics with Statistics at secondary school, have been fascinated by odds and probability.
The first system I came up with was a simple one - back the favourite and double up after a loss until a winner. Simple enough in theory, and I told my Dad about it. Not being a betting man himself, he ran it by some of his colleagues, and came home to tell me that it wouldn’t work because a long losing run would mean that the bank would be empty. Then there was always the possibility that the winner would be returned at odds-on, meaning that the total returns would not match the outlay. Not what a ten year old wants to hear! Only slightly daunted, I then went on a search for the Holy Grail, the secret to riches that I knew was out there somewhere. Finally in 2004 I stumbled across an article about Betting Exchanges and four years later I was able to make a steady profit.
Is losing like learned helplessness? The dog that is given electric shock treatment for a period of time doesn't attempt to move to its adjacent area of safety, resigning itself to the prolonged agony of it's perceived helpless situation. The power of the negative mind.
ReplyDeleteRegards,
Jason
Hi Cassini
ReplyDeleteThanks for posting this up.
I do have a question though, did he give any suggestions as to how we can protect ourselves from these sort of biases, apart from taking the emotion and passion out of the equation.
I for one believe that to get the best results you need to have a mixture of passion and emotional control (yes I know that is a paradox). You need the passion to drive you on and the emotional control to constantly make the rational decisions demanded by the our discipline.
As to the ratio between the two I would say that it should be between 60/40 and 70/30 in favour of emotional control.
Thanks again
Mark