Archives of “human behavior” tag

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Jack Schwager :Risk & Reward

  
  Education
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“In one experiment, subjects were given a hypothetical choice between a sure $3,000 gain versus an 80 percent chance of a $4,000 gain and a 20 percent chance of not getting anything. The vast majority of people preferred the sure $3000 gain, even though the other alternative had a higher expected gain (0.80 X $4,000 = $3,200). Then they flipped the question around and gave people a choice between a certain loss of $3,000 versus an 80 percent chance of losing $4,000 and a 20 percent chance of not losing anything. In this case, the vast majority chose to gamble and take the 80 percent chance of a $4,000 loss, even though the expected loss would be $3,200.

In both cases, people made irrational choices because they selected the alternative with the worse expected gain or greater expected loss. Why? Because the experiment reflects a quirk in human behavior in regards to risk and gain: people are risk averse when it comes to gains, but risk takers when it comes to avoiding a loss. And this relates very much to trading. It is exactly the quirk in human psychology that causes people to let their losses run and cut their profits short. So the old cliché of let your profits run and cut your losses short is actually the exact opposite of what human nature tends to do.”

Forgiveness

  
  Education
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One of Napoleon’s soldiers committed a crime — the story doesn’t tell which crime — and he was sentenced to death.

On the eve of his execution, the soldier’s mother implored that the life of her son be spared.

“Dear lady, what your son did doesn’t deserve clemency.”

“I know,” said the mother, “If it deserved, it wouldn’t really mean forgiveness. Forgiving is the capacity of going beyond vengeance and justice.”

As he heard these words, Napoleon reduced the soldier’s death sentence to exile.

Law suit? Porn addict? Divorcing? Seeking investment ideas? Worried about the world?-Just Spare 5-10 minutes to read this sermon

  
  Education
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Jesus of Nazareth was a Jewish carpenter that was born about 2,000 years ago in Bethlehem, which is now a Palestinian city located in the central West Bank about 10 kilometers south of Jerusalem.  Over the course of a very short period of time (about a year) Jesus developed a large following as a miracle worker and religious teacher.  He was publicly executed by crucifixion around the year 35, and many millions believe the historical narrative that he was raised from the dead after three days in a tomb, and later ascended into the heavens.

Below is an English translation of one of Jesus’ very famous outdoor lectures, which was widely shared by his disciples that were present, and eventually written down circa 70-90. 

If you take 5-10 minutes to read this sermon, then you will know what being a Christian is actually supposed to mean. 

I like to read this first thing in the morning, immediately followed by a few minutes of meditation where I sit quietly listening.  I would not expect everything in the reading to speak to you, but I believe something will, as is always the case for me.

Jesus’ Sermon on the Mount

Excerpted the Gospel of Matthew – Chapters 5-7 (more…)

Phases of Knowledge

  
  Education
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You’ve probably heard the saying, “a little knowledge is a dangerous thing.”

The path to mastery passes through a window where the intermediate practitioner, getting their first taste of knowledge and experience, knows more than the beginner — but less than they think.

This creates a widening gap between “how much I think I know” and “how much I actually know.”

I’ve never seen this concept better expressed than via the below graphic, created by Simon Wardley: (more…)

The Psychology Of Speculation – The Disconcerting Effect Of Sudden Losses And Gains

  
  Education
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Time for another classic trading book excerpt.  The subject is similar to the one in yesterday’s post. It is about limiting losses and ultimately becoming a better trader if you are willing to embark on that never ending journey to better understand yourself. James L. Fraser from Fraser Publishing clearly understood that. The introduction he wrote clearly shows his deep understanding of humanpsychology, trading and speculation. Human behavior never changes. That’s why I am a huge fan of old classics. Buy those books. Read them. Apply the wisdom imparted.

Henry Howard Harper: ‘The Psychology of Speculation – The Human Element in Stock Market Transactions’

Introduction
First privately printed by the author in 1926 and only found in secondhand stores at rare intervals this classic deserves a more wide spread audience. Harper’s human behavior material gives us insights into the handicapping prejudices that ruin our stock market theories and sound resolutions. Especially in our computer oriented age does the average investor seem incapable of calm reasoning , with the result that he often does precisely the opposite of what he had intended doing.

Moreover, Harper’s easy writing style clearly shows you how the correct ideas of theory are turned into the wrong formulas of practice, and how tickeritis, though mentally intoxicating, leads on to poverty. In a contrary way, we seldom see the favorite caprice of the stock market which is to violate precedent, and do the thing least expected of it. You had better believe it for there are no certainties in this investment world, and where you have no certainties, you should begin by understanding yourself.

James L. Fraser (more…)

A hunch can be trusted if it can be explained

  
  Education
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  • When a hunch hits you, the first thing to do is ask whether a big enough library of data could exist in your mind to have generated that hunch. Ask yourself whether you are genuinely knowledgeable on the particular topic. Have you studied it? Have you been following its ups and downs?
  • Trust your hunch only if you can explain it — that is, only if you can identify within your mind a stored body of information out of which that hunch might reasonably be supposed to have arisen. If you have no such library of data, disregard the hunch.
  • The reason for subjecting hunches to this rigorous testing is that sometimes we get flashes of intuition that aren’t based on good, hard fact. They are airy nothings.
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