Maybe We’re not in Control after all - Part 2 of 3

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If you have not read Part 1 of this Blog Series yet then it probably would be best to start there. You should find it at this link here:

http://wheeliedealer.weebly.com/blog/maybe-were-not-in-control-after-all-part-1-of-3

Physical Stress
Another one in the programme was similar to something in the Kahneman book. Some researcher somewhere analysed the outcomes of Parole Board Hearings in the US over a long time series while controlling for certain factors such as Race, Gender, Age, etc. The finding was that Prisoners who went up to the Parole Board before Lunch were far more likely to fail in their request than those applying just after Lunch. The explanation for this seems to be that when the Parole Judge is hungry and tired they tend to be less generous than after Lunch when they have been fed and watered.

I guess this ties in with the idea that Humans tend to have quite a limited ‘Attention Span’ and can only focus on something for maybe 40 minutes to an Hour or something - it varies between individuals I understand. Kahneman talks about this quite a lot - the reasoning seems to be that when we engage our ‘Slow Brain’ it takes a lot of effort and we naturally drift/default to our lazy ‘Fast Brains’. In the case of the Parole Judge they are having to focus on lots of detail and considerations of each individual Parole Case and this means applying the Slow Brain and concentrating. Once they get tired and hungry, they are less able to focus and the attention and diligence naturally falls away. I find this fascinating because yet again it shows how the idea of ‘Experts’ has serious flaws and the idea that Judges are always correct, objective and impartial etc. is clearly not consistent with the evidence from these kinds of Studies.

I have always inherently understood this lack of Attention Span, and not at all because I had leant about it in the Psychology Books. When I was at University I worked very much in a way that fitted what I found was an effective way for me - I found that after around an Hour my mind tended to drift and I would be reading things and not taking anything in - I bet most of us have experienced exactly this scenario. Consequently I used to arrange my working day very much in this way and I found that focused periods of an Hour interspersed with lots of time doing completely different and more relaxing things (for my brain) were beneficial. Probably linked to this, I always liked to get ‘ahead of the game’ and I have tended to work this way as I hate the stress of leaving everything to the last minute and having no time contingency. Many people claim to be able to work best under stress but I am very doubtful that this is really true - and I would add that trying to make sensible Trading/Investing Decisions when you are stressed is unlikely to be very fruitful.

I would postulate (wow, what a word !!) the idea that if we are trying to be successful in our Investing / Trading then approaching this when we are tired or ill or hungry etc. etc. will probably not be ideal. Even such Physical Stress as sitting in an uncomfortable manner or having poor lighting in your Workspace might be detrimental to our ability to focus and concentrate and regulate our Slow Brains from trying to drift to the Fast Brain mode.

Tired Brains mean less Physical Strength
This experiment was quite an eye opener - but it sort of makes sense really and shows ‘the power of the mind’ clearly. A Group of People were sat down in a Cinema type set-up and were shown a string of images which were very sad and deliberately designed to make the People cry.

Half of the Group were told to try to hold back the tears and to concentrate on not crying. The other half blubbed away like cry babies. After this they all came out from the Cinema thing and were given one of those V-shaped Springy things which you squeeze in your Hand to try to make your Hand stronger or whatever. They were told to squeeze it together for as long as they could.

The outcome was that the People who had been concentrating to suppress their natural response to bawl their eyes out were the first to give up and crack under the pressure. The ones who had been crying were able to hold the Springy V much longer.

This shows how the effort of using your Slow Brain to control the natural Fast Brain responses of crying (and this applies for other natural responses) actually reduces your ability to concentrate afterwards on even what appears to be more of a Physical Strength test. It is a clear deduction from this of just how important the discipline of Sports Psychology has become for all leading Sportsmen and Women and I would guess that most of the people who are at the top of a Sporting Field have a Psychologist on board their support teams.

This doesn’t just apply to Physical Strength and of course in the V-Spring example it is very much about Endurance, but it also links to the Parole Board one above where if your Slow Brain has been focusing hard for a period of time, then it loses the ability to keep such an effort going. Again Kahneman covers this in his book and it is really to do with the Slow Brain’s role of regulating what the Fast Brain does and keeping close tabs on it.

In terms of our Investing / Trading this again supports the idea that we must be aware of our limits to concentration and we must take regular breaks and be actively scheduling in some ‘Free Time’ and leisure activities away from the Markets and giving ourselves some space. I regularly find that when I am reading about the ‘Companies’ at the back of Investors Chronicle, after perhaps around an hour I am unable to really take any information in and I am having to ‘force myself’ to read it - once I get to that point there is little to be gained from continuing and I tend to shove in the Bookmark and move on to doing something entirely different and probably not related to the Markets, and more often than not it is something with more of a physical component such as mucking around in the garden or popping round to Tescos.

Political Views inherited from our Parents
This one was really astonishing. In Kahneman’s book he talks about how People who naturally and instinctively use their Fast Brains tend to lean to Left Wing Politics whereas people who are deeper thinkers and engage their Slow Brains tend to be more on the Right of Politics. However, the idea that out Political leanings could come from our DNA I found really quite a surprise - although I had read about this experiment before and perhaps not really taken it all in. Having said that, I suppose our tendency to use our Fast or Slow Brains could be very much something we inherit from our Parents - this is not a deduction made by the Programme however.

In this experiment the Subjects were shown lots of images which would trigger a ‘Disgust’ response. I still don’t fully understand this - I am not really clear on what this ‘Disgust’ really means - but they were shown images of stuff like War Zones with bodies and stuff and things like Cockroaches I recall. I also can’t remember the details of this in terms of how they measured a person’s Disgust but the upshot was that the findings were that People who tended to be on the Left of Politics were less Disgusted by the Images than People who tended to be on the Right - like I say, it is all a bit vague but the point was that we inherit our Disgust responses from our Parents.

Sorry, that Section is a bit ‘sketchy’ but I guess you can use Google to find out more if you wish to.

I get pretty disgusted when my Stocks fall so that probably leads me to vote for Theresa May !! (although last time I didn’t……..)

Decisions have a Value - varies with Time / Experience
I suspect this one is really relevant to Investing / Trading and illuminates how we evaluate Decisions in the light of our Experience as time passes. The example given in the Programme was along the lines that any Option we have as part of a Decision we give a ‘Value’ to - this is a Psychological Construct and we naturally do it all the time with our Fast Brains. 

Let’s say we have a choice of 2 Options - we can either go to the PUB with our Mates or we can go Food Shopping. Before we set off on either one, we have a ‘Value’ in our heads which is really a comparison between the 2 with regard to which one we think is preferable. However, let’s assume we go to the Pub and there is a Power Cut so no food and that irritating Friend of a Friend turns up and we end up sat next to him all night. After such a miserable experience the ‘Value’ of such visits to the Pub may fall and if we go to the Supermarket at another time and bump into the Gorgeous Checkout Assistant, then we might think that the ‘Value’ of a visit to the Supermarket is higher in future. These assessments of Value are being constantly evaluated and amended by us over time and with experience.

The link here to Investing / Trading is obvious - as we get more experienced we start to learn the attributes of Shares that tend to do well and we find that certain Technical Indicators work better than others - so we assign higher Values to these factors. Again, we amend our ‘Values’ over time and although Kahneman covers the idea that ‘Experts’ are not necessarily much better than anyone else at a particular Decision, the one thing that does give a small edge is sheer experience.

However, as a word of caution, there is most likely a ‘Fast Brain’ issue here - I suspect that we also take on board emotional and less objective ‘feelings’ about a Stock and these affect our ‘Value Scores’ for a particular Stock. For instance, we might meet the Chairman and not like the fact his shoes are unpolished - this utterly irrational thought might impact our Value Assessment of that Stock (although obviously it has little to do with how well the Chairman runs the business).

Decisions are multi-faceted
This bit was pretty good - the idea here is that our Brains have an incredible ability to process and assess enormous amounts of information with regards to a Decision. An example in the Programme was that when choosing something as simple as Cheese in a Supermarket, our Brains are processing information about factors such as Cheese colour, smell, packaging colour, picture on packaging, wording on package, weight of Cheese (both in numerical terms and more obliquely how it feels in our Hand), the texture of the Cheese when we hold it (soft or firm), the Price, whether or not the Cheese has holes, competing Cheeses which are vying for our attention, the heat or cold of how it feels to us, resealable or not, suitability for recipes we have in mind, whether or not family members like this Cheese, Brand associations formed in our minds over many years, TV Adverts, etc.

For each of these Attributes of the Cheese our Brains fire off groups of Neurons (I think that is the correct word but it might be Synapses or something) which cause ‘pockets’ of activity inside our Brains which compete with each other to say “This Attribute is more important than that Attribute” etc. These pockets are the result of the interactions of trillions of electro-chemical signals. When we finally come to a Decision, one or more of these Pockets of activity have won out and driven our Cheese choice. Again this evaluation of Attributes varies over time and with experience and utterly irrational factors can actually drive the Decision.

Another interesting twist on this Cheese Choosing is that we also have a habit of lying. When asked “Why did you buy that Cheese?” we probably reply with something like, “Oh, my Grandmother used to live in Somerset and she always had the best Cheddar Cheese so this reminds me of those times” which sort of sounds rational enough, but the truth is probably more along the lines that our subconscious Fast Brain loved the way it felt in our hand. Most of the time we probably don’t even know we are lying.

Needless to say we follow similar steps when assessing whether or not to Buy a particular Stock - however, it is very important to realise that some of this Activity in the Brain is taking place in our more rational Slow Brains but probably the vast majority of it occurs instantaneously in our Fast Brains and this can be extremely dangerous as our Fast Brains tend to jump to conclusions and mislead us terribly. 

Sometimes I do wonder if it is possible to rule out these irrational and emotional drivers of our Decisions - it is very likely that we cannot do this and we are doomed to always be driven this way. However, just by being aware of the short comings of our Fast Brains and the tendency we have to laziness and not wanting to engage our Slow Brains, probably improves our chances of making a good Decision to a small extent.

I hope you liked that one, I find it all fascinating myself. In Part 3 I will introduce a couple of new ideas and a short Conclusion.

Cheers, WD.