Hot headed investors make better decisions | stockbee

9/17/2007

Hot headed investors make better decisions

There is an entire army of trading psychologist who emphasize emotional control is the key. This study finds the reverse is true.

NEW YORK (Reuters) - Sometimes it's best not to keep your cool.

In fact, hot-headed stock investors make better decisions, a study in the Academy of Management Journal showed.

Adding emotions to the decision-making process can enhance creativity, engagement and decision efficiency, Myeong-Gu Seo of the University of Maryland and Lisa Feldman Barrett of Boston College wrote in a study published in the August/September issue.


The greater the average intensity of an individual's feelings, the higher their investment returns, the professors found. The study monitored 101 stock investors in a simulated trading exercise spanning four weeks

"Contrary to the popular belief that the cooler head prevails, people with hot heads -- those who experienced their feelings with greater intensity during decision-making -- achieved higher decision-making performance," they wrote.

10 comments:

The Crew said...

Pradeep,

I am not seeing the market monitor on my membership page.

Pradeep Bonde said...

It is visible. Might be cookies problem.

market operator said...

Haven't read the whole paper but 101 investors for 4 weeks doesn't seem like enough data to draw any reasonable conclusions.

fran said...

daughter sent me that article because she knows that i've been working hard to keep the emotions out of trading...i think the key word is "simulated" ie, no real money involved....

Pradeep Bonde said...

Harder one tries to keep emotions out, at some stage there is breakdown, so emotional control inherently sets one self for failure. Not only in trading but in most other things in life also.

fran said...

pradeep,

hmm...a clarification....not to control emotions, but to not have them...this is just a job, i work according to plan....no need to have feelings about it...

beth said...

Pradeep..... how true, that last comment of yours.

Know thyself.

Maybe more importantly, let yourself unfold... as you really are. Both in life, and in trading, and give permission to the parts you want to eradicate... to express.

john said...

:I'm w/Fran.....

losing/gaining "simulated" money is not the same as with your own.

What a bunch of BS.....and this is coming from a graduate of two fancy-pants universities with two fancy-pants degrees.

The older I get, the more I believe that "those who can't, teach" hahaha.

Naturally, YMMV.

beth said...

This is an interesting topic.

I don't know if the study is valid or not. I guess I was trying to say that Pradeep's comments are valid, IMHO.

While a study might be interesting to read and speculate about, much more important is to study oneself and one's own market reactions. THAT, you'd better know.

Pradeep Bonde said...

If you see most of the institutions like religion, armies, spies and such other places where there is enormous pressure on emotional control, from time to in spite of best efforts the system breaks down. There are all kinds of scandals.

I spent 10 years in a highly structured and regimented British style boarding school , where emotional control, discipline , rigor, and rules and regulations was the norm. It simply does not work.

Even people who have very outwardly emotional control, have many unresolved issues and many times at some stage cannot keep their facade of self control.

Normally people who are tune with their emotions and are guided by emotions are happy and well adjusted people in life. That is my experience and observation.