MONKEY WITH A PIN
book called the Chimp Paradox,7 he translates Freud’s concepts of ego, id and superego into something much more understandable: human brain, chimp brain and computer brain. He argues that our chimp brain, which controls our emotional response to problems, is significantly stronger than our rational human brain and our automated-behaviour computer brain. In an interesting article reviewing the book, Prabhat Sakya argues this is why, when we see the prices of shares tumbling, we respond with our chimp brain.8 It is shouting at us that the share is going to crash and to sell while we still can. This is despite our human brain arguing rationally to us that shares do go up and down and our original policy was to buy and hold. Our chimp brain is apparently five times as strong, so it usually wins, as we’ve seen from Terry Odean’s evidence. Apparently, our only saviour is to exercise our chimp brain. Examples in the book include letting it sound off and getting it to discuss its actions first with our human brain (or ideally someone else) before acting.
Decisions, decisions, decisions So, returning to the five themes from my interviews, I think this data illustrate some of the key issues. First, when new traders start, they say it is actually really difficult to know what to buy. They tend to look around for tips in newspapers, magazines and online. However, by the time these are printed and well known, the action has already taken place on the share price (as evidenced in the research on the pro’s predictions for the Wall Street Journal we saw in 144