Taxi DriverSome NYC taxi drivers work a predetermined number of hours each day; some work until they have made a predetermined amount of money and then quit for the day. Camerer et al.

I knew many new traders at the exchange who would set goals on the order of making $200 a day or whatever, and if they made that, they were finished for the day. Since their losing days were more frequent than their winning days, most did not last very long. The ones who did last tended to keep market hours, worked on pressing their winnings (if losing, learning in the process), and minimizing their losses. Absolute goals on the upside might be a bad thing for a trader to use. Keep the losses to a minimum, play a good defense, and the winners will take care of the losses. Since trading is not an exact science, why would someone set exact goals on the upside to meet?





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6 Comments so far

  1. Rocky Humbert on June 8, 2009 7:43 pm

    To answer Jeff’s question,

    Classical economics states that if you increase marginal income tax rates, people will work less — and as marginal tax rates reach 100%, people will stop working entirely. However in both of Jeff’s examples, the opposite is true — the more income the trader/taxi driver receives, the less he works.

    As the academic paper explains, an explanation is the value of leisure time. If the taxi driver/trader hates his job — he will earn his subsistence wage — and then spend his remaining time in an activity with greater personal pleasure/utility. This is an entirely rational reason to set financial goals on the upside.

    A second rational reason (for the trader to stop while he’s ahead) is The Theory of Runs. There are a variety of trading/grambling money management approaches which rationally demand “walking away from the table” after a number of winning hands.

    There may be other explanations too, but the point is that it can be rational for people to NOT always maximize monetary profit …

  2. jeff watson on June 9, 2009 7:32 am

     I knew many a poker player that had an absolute goal of making $1000 in a session. When he had $990 in front of him, he decided to press on to make that extra $10 and make it an even $1000 and achieve his goal. What do you think usually happens in a situation like this?

    I know from personal experience that I usually had to sign a marker before the evening was over.

  3. Rocky Humbert on June 9, 2009 9:46 am

    The optimal monetary-profit-maximizing algorithm for deciding (per Kenny Rogers) “when to walk away and when to run,” should probably be based on (1)a qualitative judgement regarding your superior skills at that poker game, (2) whether your winnings are attributable to luck versus brains, and (3) most importantly, whether you’re going to get mugged on the way home.

    I have never played poker for money, but I do buy a lottery ticket on the rare occasion when the pot exceeds $300 million as I get personal utility from imagining the fun I could have by putting $300 million into a charitable foundation.

    Classical economists and statisticians like to show that people behave irrationally. In large measure, I think they misjudge individual utility curves and have difficulty quantifying “happiness.”

  4. jeff watson on June 9, 2009 12:43 pm


    Sometimes, one should do research on the concept of “Luck.” I think luck, if it even exists, is as rare as a sighting of Bigfoot. I’ve had many a philosophical discussion regarding luck and once even proved that luck doesn’t exist….at least according to Webster’s definition. I’ll have to dig up that proof as it’s the single elegant, original thought I’ve had in my life.

    As for getting mugged on the way home, sometimes one has trouble just getting away from the table with their earned chips, especially if they’re new to that table. Still, it’s easier to get away with your chips from a poker table than in a bowling alley or pool room, and this I speak from personal experience.



  5. Superpie on June 9, 2009 4:58 pm

    Some interesting ideas here. I’m playing a lot of poker online at the moment and so I think about this most days.

    I tend to take the view that if I substantially exceed my average win in a particular session I wrap up and go home. I try to avoid saying to myself that I ‘must win X amount’. As Jeff mentioned pushing too hard to achieve just a few dollars more has often resulted in disaster!

  6. Jim Davis on June 11, 2009 1:30 pm

    This is an old and absurd notion.

    If anything, you should press if you're winning, not walk away.

    The weak-minded are trying to keep a winning day intact, as if that in itself was a grand reward.


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