Idiots in Investing Echo Chambers

From The Psy-Fi Blog
March 20, 2017 - 6:30am
Investing in the DeadSome people like to wander round graveyards. I get the same sort of ghoulish pleasure out of frequenting investment discussion boards. They're full of Pollyannas, forever only able to see the good in the stocks they invest in.Sadly they're almost always wrong. But it's kind of fun watching them keeping the reanimated corpses of zombie stocks moving about through the power of sheer stupidity.The Glad GamePollyanna was the eponymous child heroine of Eleanor Porter's 1913 novel whose main characteristic was a determination to find the good in any situation, no matter how grim.  Unsurprisingly, then, the Pollyanna Principle refers to the behavioural bias in which people see only the positive side of any particular situation, a trait otherwise known as exhibiting positivity bias.Pollyannaism may well have been a valuable evolutionary trait, enabling our ancestors to strive for continued existence in an unfriendly world devoid of anything my children would regard as life's essentials: good cellphone signals, unlimited broadband and an infinite supply of sugar. However, in these more enlightened times it can be a positively negative force. Especially for determinedly positive investors in the smaller type of "exciting" stock.Bigger, Better: Older, Wiser?So, technically, Pollyannaism is a tendency for people to remember nice stuff more than nasty stuff. It's closely associated with optimism bias, for which there's decent biological evidence suggesting that it's hardwired into our brains (for this read Unrealistic Optimism and the Impoverished Investor or anything by Tali Sharot). The original research for the Pollyanna Principle was produced by Margaret Matlin and David Strang in 1978 who showed that people judge pleasant stimuli to be larger in size than unpleasant or neutral stimuli. In related research it's been shown that we think more desirable objects are closer than less desirable ones and the older we are the more we prefer positive or neutral images (see Eric Allard and Derek Isaacowitz (2008) and Andrew Reed, Larry Chan and Joseph Mikels (2014)). This latter finding, the age-related positivity effect is possibly because the older you are the more you realise that life is too short to focus on the downside of life. So how does this read across to bulletin boards?Talking DownEd Croft, who's the CEO of the UK


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