Some of the questions I have answered again and again through comments and post or on email about earnings, float, how to find earnings or float, or yearly growth of stock,etc., illustrate very well how mental models affect our behavior and leads to blindness.
Your mental models create blindness to obvious things. Beliefs and assumptions, which do not fit in to your mental models fail to register with you, you are blind to them. When I tell people who have been proudly using TC2007 for years how to find float or earnings or revenue growth in it. The first reaction is of surprise. " Shit, I looked for float all over the web?", "Holy Cow, I have used this software for 5 years, and I never knew there is earnings data in it", "I have been using Yahoo Finance/ Moneycentral/Aol Finance etc for years and I never ever looked at earnings." And so goes the reaction. The information is everywhere, you are just blind to it. All screener allow you to do this.So many sites have float and earnings information.
If your prior mental model was about technical analysis, you interpret the world using your "reality" of technical analysis rules. If your mental model is driven by indicator, you are blind to rest of the things. If you never believed earnings was important in driving price behavior, you would never look at earnings closely. For a given trader , he or she has his or her own "reality" about how markets operate and how his or her own behavior is correct behavior.
Mental models are coping mechanism for the complexity around us. You develop mental models over your life time for different set of facets of your life.As you move and act, as you live your life,and as you learn and master new knowledge and skills you create your own understanding of the world. That is your own interpretation of how the world operates or should operate.Most of the time you are not consciously aware of the assumptions, the beliefs which go in to your mental models.
The primary benefit of developing mental models is that your mental models help you get things done faster. Your behavior and reaction to world around you stems from such simplified, your own "reality" view of the world. Life becomes easier if you can follow the same process. Strongly formed habits lead to a decreased cognitive
load, which frees you up for things that matter more. There in lies a problem. People walk the same road for years, but are bind to many things on it.
Loss of orientation is a natural reaction when faced with a new way of looking at things. In fact in successful commercial communication or art like novel or movie, a skillful plot is used to manipulate peoples mental model, so that thy think in one way and then the surprise is sprung on you.
I find it amusing when people claim they are not influenced by advertising or leaders. Or claim no one can change their behavior. Day in and day out advertisers and marketers change your behavior successfully using just communication. That gets reflected in sales and profit for companies. How do they do it, by skillfully providing you new information which makes you reevaluate your choice of brands. They do it vividly, so that it gets noticed, they do it repeatedly, so that you contemplate on it, they do it in entertaining manner , so that you do not see it as annoyance. All that they use is an argument to change your existing assumptions and beliefs. The result, you buy one product over another or shop at a particular shop. That is behavior, not just attitude change.
Leaders do the same thing. What do leaders do, they change followers mental models. They do it through communication, symbols and arguments. Arguments is the currency of leaders. Using skillful arguments , a leader garners followers, maintains them, and make them do things which he wants them to do. Leaders create alternative reality, the followers strongly believe in it.
If you think about this and look closely, you will see people change their behavior significantly once they start following a leader.They donate to them , they buy their books, they vote for them , they even kill for them. Remember you change your behavior willingly , when you follow a leader.Leader is successful only if he can change followers behavior. Barack Obama will be successful leader, if he gets you to vote for him.
If you want to learn about changing your own behavior, look at how others change your behavior successfully. They do it day in and day out, you are not aware of it. What process do they use. Advertisers , marketers, and leaders change your behavior day in and day out. They do it by manipulating your mental models. If you understand the process, you can change your own mental models using same process.
To trade in a new way requires behavior change. Part of the challenge is, it is self directed behavior change. If it is a directed behavior change, the process is a bit simpler. But a directed behavior change still requires first a submission to the outsider directing the behavior change. That is the reason, you will see in Japanese or Chinese themed movies, the Zen Master first breaking down the disciple by giving menial jobs or impossible tasks.You will see this again and again in movies. Once the disciple surrenders, then the behavior change happens quickly. The Eastern philosophy believes in first emptying the mind and then putting new things in to it.