Feedback can be a great and sometimes necessary thing. For instance when taking on a new task, be it a new job, or a sport you have just taken up, feedback can be a vital tool in helping you progress and improve at your new task.
However researchers from the University of Berkeley in California have recently written a paper which shows how feedback loops can be detrimental to learning. What they uncovered is when a person is given positive feedback around a task they are performing. The person will take that feedback over any new evidence presented to them.
Self Delusion Battle
When taking part in trading, whether it is in sports, stocks and shares, or cryptocurrencies. You are fighting a constant battle against self-delusion. That is because it is very easy to tell yourself something you want to hear, and then to believe it.
Sometimes this is a useful trait; wow, I'm so amazing, I'm going to blow them away and get this job! Or ,I'm the best athlete I will definitely win gold!
This is called faking it till you're making it, a form of self-hypnosis that when applied correctly, and mixed with action taking, can really pay great dividends.
However self-delusion/hypnosis is only useful when dealing with elements completely in your control. So telling yourself you are definitely going to pass an exam is fine. Because you can control how much you study and practice for the test.
Self-delusion becomes dangerous when it manifests in things we can't control. For instance believing that you can cause an unscheduled eclipse to happen, or you can cause physical objects to move with your mind is clearly a step too far on the road to delusion.
However what about more subtle forms of delusion that are harder to detect? How will those affect your trading and your day to day life?
A Very Sticky Loop
Imagine for a second you are a plumber and one day you have been called out to install a shower in someone's bathroom. When you finish the homeowner tells you what an amazing job you've done and even pays you a bit extra.
You are happy in your new trade and you take your good vibes onto your next job. Soon you have made a speciality in installing showers and everywhere you go, you leave behind satisfied customers.
Or so you think . . .
Unbeknown to you, each shower you install goes wrong after about six weeks. However you are such an amiable person and such a wonderful human being whom has shown such enthusiasm for your work, that none of your clients has the heart to tell you that your workmanship is shoddy.
This goes on for years, you fit showers, they go wrong, nobody tells you.
Then one day you join forces with another plumber. This person has lots more clients than you do, and needs a shower specialist so you hook up together and off you go.
On the first day working together, your new colleague sees how you are fitting a particular pipe and tells you that there is a much better way of doing it. In fact he tells you that you are risking the shower going wrong and flooding the bathroom if you carry on using your technique.
You don't listen to him, you let him know that you have been doing it this way for years and everyone is happy with your work. In fact you tell him, you've never had a single complaint.
Six weeks later your partner tells you that the shower you fitted has sprung a leak. The client was on the phone to him ranting and raving at him to come and fix the mess that you created.
Instead of realising that he had warned you about the technique potentially causing a flood. You simply reject it out of hand and tell him that there must have been another factor.
He tells you that it's fine and he'll sort out the problem. However he offers to show you a better way to fit the pipe. You reject his offer as you already know that your way is the best way.
Even the dozens of floods that take place in the following weeks don't convince you.
Your partnership eventually breaks up leaving you stunned by your partner's incompetence.
Trade Loop
The reason why the feedback bias is so dangerous when trading, is that you can get locked into a way of thinking that will lose you money steadily over time and you won't even realise why.
For instance you may buy into a certain crypto feeling that it will increase in value for a certain reason. Initially it does go up and the reasons why you bought it are reinforced in your mind.
However it is completely feasible that the coin went up for a completely different reason. Thus when it starts to crash down you are unlikely to do any further research into why.
This is because you have created a feedback bias whereby you have linked earlier success to your knowledge. This makes you very unlikely to do any research, or take notice of any new information you come across.
Keep Learning
Ultimately, as with most cognitive biases, there is a very good evolutionary reason why the feedback bias has manifested itself in our brains.
In any one area there is a wealth of information available to access, both correct and incorrect. Therefore it is much more efficient to learn about a subject and then just get on and use that knowledge.
This would have been true even before the days of the internet. Nowadays we are assaulted by new information everyday. If we stopped to try and take it on board, we would find it hard to get anything done.
The trick is to actively seek out opinions that don't agree with you. For example in our plumber example earlier. The simple solution would have been to understand that things not panning out the way you expect, might be due to a way you're analysing the evidence. Once you do that it is easier to look at a new method being proposed.
Most of all, try and be aware when you are dismissing new information about something you know really well. Keep in mind that even though you know the subject inside out, there is always more to learn.
WHAT SUBJECTS ARE YOU AN EXPERT IN? ARE YOU OPEN TO NEW INFORMATION IN THOSE SUBJECTS, OR DO YOU JUST KNOW YOU KNOW EVERYTHING THERE IS TO KNOW IN THIS AREA? OR PERHAPS YOU HAVE BEEN IN A SITUATION WHEREBY YOU HAVE BEEN THE ONE TRYING TO PASS ON NEW INFO TO A KNOW-IT-ALL?
AS EVER, LET ME KNOW BELOW!
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