Bill, here's my 5 minute sound byte....
it is a given that homo sapien sapiens are not rational...well not anywhere near 100%...we didn't evolve that way...the brain has not evolved to individually process every piece of data independently and judiciously...we have evolved to make decisions hastily.......risk in relation to predators or a person with a weapon needs to be established quickly...and the brain has evolved pattern recognition to allow us to make decisions quickly, and thereby give us a survival advantage....sure, it isn't perfect or totally rational, but there is often a trade off between speed and accuracy in decision making.....
of course, rationality is a part of the evolutionary process too, though more recent....for many it is a struggle to suppress the older patterning system in favour of the newer more rational one...
another consideration is so profoundly conveyed in "necessity is the mother of invention"... we often don't change patterns until it is almost a life threatening matter, or the media and ASIC broadcast the hurt caused by the self absorbed behind Westpoint, HIH, etc...
Pattern recognition applies to evaluating investments as much as anything else. We look for :
- patterns in the reputation and manner of the person we are considering investing with
-pattern similarities between new investment product and our engrams on previous successful investments or readings and research.
- patterns in whether the opinions of others are congruent with our patterns.
I think many are perceived as more rational when they have more sutble or complex patterns to overlay on their observations of the world.....at the end of the day though, we are all heavily enslaved to the patterns within our engrams....
In summarising, human rationality is inhibited by:
- a lack of time to process data rationally
- a lack of computational power..
- limited available neural networks or mind maps or patterns in how to process data efficiently and rationally...very few have highly disciplined minds capable of acknowledging their own bias or thinking outside their own patterns..
- that we have millions of years of evolved hardwired circuits of pattern recognition that will cloud pure rationality...
i.e. how credible would a hesitant poorly dressed, inarticulate frugal type be in trying to sell an investment strategy? the two images just don't resonate according to our neural patterns. Much more effective to put your best suit on, talk loud and confident, lots of examples of how wealthy you are....well, that strategy works with 80% of the population, and that's all you need to make a 100 million before you are too old to enjoy it......(even if that frugal was Einstein)
This is just as true when choosing to decide what fund to invest in, what new car to buy, or house, or tube of toothpaste, and maybe even life partner.....we all have limited time and energy to make these decisions...
those that can exploit the patterns of the majority, by moulding themselves to fit it, are more likely to successfully gain others' trust, hence money....they are also very likely to be more successful in manipulating others to turn against those who would disagree with them...
as Andrew_A mentioned on another thread, it is very much all about a leap of faith whenever going with an investment not controlled 100% by self....
And it is made even more a leap of faith when we have to make a decision whether to trust a human rather then a trading strategy.....when you throw humans into the equation, I doubt what role explicit rationality has........what I am thinking of here is the process one goes about in selecting a life mate.....it will never be a totally conscious logical decision.....pattern recognition going back millenium in the deep recesses of our brains, will influence what we believe is a viable life mate........
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Apart from all that, the other reason we are prone to a bit of personality worship is because we like to reinforce the investment decisions we have made.....by selectively filtering out negativities about those decisions....think about how sentimental some become towards the shares they hold....or the presenter who's first seminar's strategies made them a motsa....
BTW, the reason I got screwed a few years ago, and still have a litigious matter hobbling me from moving forwards more aggressively is because I selectively filtered out data that might have made me doubt my investment......and the reason I filtered that data, was because there was someone involved who'd never advised me wrong before, and had made me quite a lot of money.....but she saved the big hurt till the end.....
Incidentally, I know a developer who's modus operandi exploits this. He builds relationships gradually....throws a lot of work at a contractor, over and over....let's them make money, let's the trust build...then he starts doing bigger and bigger jobs, then gets later and later with paying.....recently, a mate with an earthworks company was owed $800k by this guy......then this developer turns and turns hard.....starts accusing the earthworks company of not finishing jobs on time etc....and sues them for $3M in damages, and refuses to pay the $800k....this is when you need a deep pocket to get the best legal representation....... (if anyone wants to know the name of the developer, I am happy to put you in touch with the guys he has screwed. they are determined that this guys world gets a lot smaller)
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Another point is that you cannot invest in something you are not aware of....and that is one of the first defences of advertisiing.....familiarity sells. if you put 3 non generic never adertised new brands of toothpaste up against Macleans or Colgate, great packaging, great price, etc etc...you'll still sell lmore Macleans and Colgate....why? cos ppl haven't heard of the newies before....they don't know whether they are good or bad.....best to go with what is familiar.....
this effect doesn't weaken until a product is very much a commodity.....but that can take decades and is never a pure effect, and some products like houses or shares or managed funds might be difficult to commodify, because so much is at stake, and there actually is a lot of variety in quality.....
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THough I agree BillL, it is in the interests of the human race, for all of us to develop more complex pattern recognition capabilities, and rely less on the more primitive patterns that lead us so readily and lazily and unquestioningly into surrendering one's will and discernment to another.........for just as there are so many who are apt to surrender, there will always be another supremely confident, charismatic, and bullying type not too far away who will exploit that tendency as means to attain their own ends.........even if that person's name is not Hitler....
Bill.L said:
Is it because of something else??
