Why it is so hard to follow simple rules
I was talking with my uncle a couple weeks ago about trading. He is a chess master and I told him how the most difficult part of trading is that it is so easy to break your own rules. He couldn’t really understand how that could be hard. It does seem simple to just follow a few basic rules and I had a hard time trying to explain to him why it isn’t so easy.
Well, according to new research at the University College London, “irrational behaviour arises as a consequence of emotional reactions evoked when faced with difficult decisions.” In order to trade rationally – to follow your system without fail – a trader needs the ability to override these automatic emotional responses.
“Our study provides neurobiological evidence that an amygdala-based emotional system underpins this biasing of human decisions. Moreover, we found that people are rational, or irrational, to widely differing amounts. Interestingly, the amygdala was active across all participants, regardless of whether they behaved rationally or irrationally, suggesting that everyone experiences an emotional reaction when faced with such choices. However, we found that more rational individuals had greater activation in their orbitofrontal cortex (a region of prefrontal cortex) suggesting that rational individuals are able to better manage or perhaps override their emotional responses.�
Also interesting to note is a study detailed in Psychological Science shows that “people perceived as the most likely to succeed might also be the most likely to crumble under pressure”:
“The pressure causes verbal worries, like ‘Oh no, I can’t screw up,’” said Sian Beilock, assistant professor of psychology at Miami University of Ohio. “These thoughts reside in the working memory.” And that takes up space that would otherwise be pondering the task at hand.
