"Optimistic Bias"

[Stanislav Bernuhov]

I want to retell one quite interesting article about "optimistic bias" with my commentaries. I also ask you to comment it.

People always ask any expert if he is optimistic about our future. People are actually asking two questions: Where does one naturally fall on the optimism spectrum? And is there a place for optimism in our present circumstances?

One of the most basic findings in behavioral economics is what’s called the “optimism bias,” also known as the “positivity” illusion.

The basic idea is that when people judge their chances of experiencing a good outcome– getting a great job or having a successful marriage, healthy kids, or financial security – they estimate their odds to be higher than average. But when they contemplate the probability that something bad will befall them (a heart attack, a divorce, a parking ticket), they estimate their odds to be lower than those of other people.

This optimism bias transcends gender, age, education, and nationality–although it seems to be correlated with the absence of depression. Depressed people tend to show a smaller optimism bias. They also have a more accurate take on reality–perceptions more in line with what actuaries figure to be their real chances of divorcing, suffering a heart attack, and so on...

So our psychology while speculation turns on and we begin to estimate our chances higher than average, though we know that good trades are rare things to find and there are a lot of, thousands of people we are getting conquered with.

So, I would say that winning trader should keep his optimizm under control, because one of the most important things in trading - cutting losses. We can cut only when we aren't so optimistic, are we?