Investing and the Irrational Mind: Rethink Risk, Outwit Optimism, and Seize Opportunities Others Miss by Robert Koppel

Author:Robert Koppel [Koppel, Robert]
Language: eng
Format: mobi
Publisher: McGraw-Hill Education
Published: 2011-04-22T04:00:00+00:00

Disqualifying the Positive

This involves rejecting positive experiences or outcomes, believing that they really don’t count for subjective reasons. As a result, individuals maintain a negative belief that is contradicted by objective reality. An example may take the form of an investor’s harboring the irrational belief that if she makes a profitable trade, it is the result of luck, but if she makes an unprofitable trade, it is because she is a failure. Many times an individual reaches this unfortunate conclusion about herself, even though everything about the investment was in agreement with a thoughtful plan. It may have been well researched, executed, and risk managed—all positives—but the investor nevertheless blames herself. She feels that she is at fault, and her brain argues that the loss was symptomatic of personal inadequacy when, in reality, the investment may not have worked out for myriad reasons that were outside her control.

Related to disqualifying the positive is another form of spurious reasoning known as special pleading, which introduces favorable details or excludes unfavorable details by alleging “special” considerations without proper qualification. It is an abrogation of the rational assumption that in an argument, wherever a distinction is claimed, a relevant basis for that distinction needs to be identified and substantiated. Simply put, special pleading is no more than an attempt to gain an exemption from a generally accepted rule or principle without justifying the exception. In philosophy, it is assumed that special pleading is a subversion of logical reasoning. As investors, we often plead with ourselves that a particular investment in stocks, bonds, or real estate is special. Our minds persuade us to move forward without verifying, even though our decision is outside the bounds of prudent risk parameters or the established rules of a trading plan.

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