Jul

14

 "Mistakes Were Made, (but not by me)" by Carol Tavris and Elliot Aronson is the best of the recent books about cognitive biases. It succeeds by convincingly extending the theory to the broader social issues of politics, divorce, criminal justice, and war. Ariely's book "Predictably Irrational" described the quaint academic experiments but did not extend the theory well to broader issues. Aronson answers Dr. Taleb's Black Swan issue of process vs jump by describing the process of how an initially honest cop or politician or executive starts honest, but ends up as a criminal (or society ends up in war and genocide) in a series of small steps down a pyramid of self deception, cognitive bias, and end up unknown to them, in a manner mysterious to them, at the bottom of slippery slope of deception. This process is the unrecognized missing element in the Black Swan, which upon retrospect when at the bottom of the slope appears in the mental narrative as a catastrophic anomaly but which in fact was a step by step process.

Cognitive dissonance causes great pain. The thinking goes: There is no way a good person like me could do something so stupid? That causes a chain of alteration of memory, selective cherry picking of evidence agreeing with a preconceived result, self justification, even false memories, shifting of blame and justification. The result is war, divorce, wrongful conviction of innocent people, prejudice, mistaken governmental policies, plain bad decisions. We have all seen people place blame on others for their own faults. This is the heart of many, many failures. The simple recognition of this phenomenon is critical to its avoidance.

As traders we are uniquely confronted with cognitive dissonance and cannot easily escape the reality of our mistakes as the stats make clear what our weaknesses and mistake are. Trading has been the main tool in my life to face up to my personal weaknesses and to try do something about them and has been worth way more than the money gained. The difficult issue for me is to realize when I am right and to press the attack, rather than to worry maybe I'm wrong. It's a tough call in balance.

I recommend this book most highly of all the recent books.


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