Predictions and Decisions

Humans are natural forecasters. We find predictive patterns pretty much everywhere. It’s a natural basis for our survival. If humans are good at anything it would be predictive patterns and accumulation of knowledge. Entire science body is about ability to explain the world around us and forecast future events.

Predictions might be roughly categorized into to types: conscious and unconscious, or fast/slow thinking (if you like terminology of Daniel Kahneman). Unconscious decision making is effortless and fast. Every moment of our life is filled with those. It’s very instinctive, emotional, and easy.

When you take glass of water with your hand it’s not a trivial task. Try to explain all movements of your fingers would be staggeringly complicated task. The precision with which people do it quite impressive and quite difficult to reproduce using modern robotics tools. Humans do it effortlessly.

We see patterns everywhere…well…even if they are not there. Many people see image patterns every time they look at the clouds. You ever worked on trading floor with technical charting pattern analysts – you would the same behavior there. Technical analysts see patterns everywhere – and every one of them sees completely different one. (I don’t want to disqualify really good tech analysts)

Humans value ability to make right prediction extremely high. Forecasters, scientists, and even mentalists have always had very high level of admiration. Keep in mind that magic, and science were closely related for a very long time. Just as astrology was considered a very serious science practiced by many notable people (such as Galileo, Kepler, etc.). Just as alchemy was a predecessor of modern chemistry.

Human love to be right. Many amateur and even professional traders that would rather right, even if they loose money. It takes extreme effort to admit your own mistakes. Very few people can master it. Trading is a very special area – mistakes are measurable. You either learn to admit your own mistakes or you go out of business. No other occupation has such a transparent and simple tool to test you decisions.

Music might be another good demonstration of our love to predict events. Absolutely predictable periodic sound is extremely boring and we would never call it “music”. Totally random and chaotic noise is just annoying and irritating for us. Music must be mathematically predictable, but with some surprises. People enjoy that without any effort using their “fast thinking” unconscious mind.