If You Like Gin And Marmite, You Are Probably A Better Trader

There are correlations between taste preferences and personality (disorders) which are also highly present on the trading floor — so check your tastes to see if you are already likely to be a winner!

Evidence has been reported that there are correlations between liking certain bitter tastes and certain personality factors.  Personality as generally understood does not really exist; the belief to the contrary is known as the Fundamental Attribution Error.  However, there are some stabilities in character which are or approach being diagnosable as “personality disorders.”  These though are very much in the eye of the beholder in terms of whether or not they impair effectiveness.  It turns out that these same personality stabilities are highly prevalent in competitive professions, so these people must be doing something right.

Researchers from the University of Innsbruck reported as follows:

Individual differences in bitter taste preferences are associated with antisocial personality traits

Bitter tastes are basically self-explanatory.  Marmite and gin and tonic are two obvious examples, but tea or coffee without sugar could be others.  One might also start looking at wine types.

The authors found robust correlations between preferences for such bitter tastes and the Dark Tetrad, which is the Dark Triad plus everyday sadism.  The Dark Triad is one of the stable factors in personality.  It consists of Machiavellianism, psychoticism/psychopathy, and narcissism, at levels below threshold for diagnosis as a personality disorder.

Machiavellianism could also be termed manipulativeness.  It reflects how likely someone is to be devious or to manipulate others for their own benefit.  Psychosis means susceptibility to delusions.  Some false beliefs — especially false positive beliefs about the self — are correlated with individual success.

Some authors in the literature include psychopathic tendencies instead of psychosis.  These tendencies come from a wide potential array of behaviours.  Some or all of the following may be present:

  • glibness
  • superficial charm
  • grandiosity
  • pathological lying
  • manipulation of others
  • lack of remorse and/or guilt
  • shallow affect
  • lack of empathy
  • failure to accept responsibility
  • stimulation-seeking behaviour
  • impulsivity
  • irresponsibility
  • parasitic orientation
  • lack of realistic life goals
  • poor behavioral controls
  • early childhood behaviour problems
  • criminal activity

Obviously some of these are very unhelpful.  But we can imagine that others could be extremely useful.

Narcissism is an extreme level of self-absorption and self-belief.  This looks as though it will be really quite useful in terms of allowing people to fail repeatedly with no adverse ego consequences.

We know that the Dark Triad –and presumably also the Dark Tetrad, since that is very similar — are heavily over-represented in certain professions.  That is: investment banking, journalism and politics.  All of these professions are extremely competitive and perhaps also require a certain amount of ability to exploit others.  This can therefore explain why the Dark Triad would often be seen on the trading floor as well.

Of course, this shows correlation rather than causation.  However, since we have a plausible explanation as well as a correlation — it seems likely that being a Dark Triad person will be valuable when trading.  And now, since we have observed correlations* with bitter taste preferences, there is an easy way to check!

(Disclosure: I am well-known for liking ridiculous amounts of Marmite.  I don’t mind a gin and tonic either.  And I wrote this: https://www.amazon.co.uk/Psychology-Successful-Trading-Behavioural-Profitability/dp/1138096288/

So that’s one more data point!)

*The Innsbruck researchers say they have succeeded in:

consistently demonstrating a robust relation between increased enjoyment of bitter foods and heightened sadistic proclivities

The #Bitcoin Bubble Is Caused By The Halo Effect

One of the causes of the Bitcoin bubble is a cognitive bias known as the Halo Effect. I will explain how this works and how it is going to prove very expensive for holders of Bitcoin

The Halo Effect occurs when people judge the overall quality of an item or person by considering only a single property of that item.  This can lead to dramatic errors; most obviously when all of the other qualities of the item  are negative or highly questionable.  This I will argue here is one causal factor among several which have caused novice investors to buy Bitcoin.  When it crashes, they will lose all of their money.  They will be unable to exit the market because the power of the cognitive bias is too strong.

In this post, I will briefly set out the cognitive biases which are in play here before describing the Halo Effect and how it is another feature of human psychology which leads people to mistakenly buy Bitcoin.

The Halo Effect is not the only causal factor operative among the novice investors who are buying Bitcoin.  I have already argued:


— that another causal element is that Bitcoin buyers prefer their own experiences to any consideration of statistical data.

In addition, Bitcoin buyers share with Trump voters a distrust of experts, as I argued here:


We can see that as a two variants of the Dunning Kruger effect.  Here, people who lack competence are unable to detect such lack of competence. This makes intuitive sense since people who lack competence and are aware of it would presumably either take steps to address that lack or avoid activity requiring the relevant competence.

A corollary of that is seen in another variant of the Dunning Kruger effect: people are unable to detect true expertise.  We can see this when:


— someone is able to publish a book on Bitcoin when it is quite apparent that they do not have even a basic understanding of it.  For readers of this book, it must be impossible to recognise and benefit from well sourced, properly constructed arguments, for example in the mainstream media.

I turn now to the Halo Effect.  This was first seen in data about personality assessment in the military.  It was found that officers asked to rate their subordinates would in fact rely on a single criterion, and then assume that all other  relevant factors were correlated with that one criterion.  This is obviously dramatically false unless all of the other variables are correlated with the one assessed.  And that is highly unlikely to be true.

Many people are unable to distinguish Bitcoin from the blockchain.  This leads many of the novice investors who are buying Bitcoin to fail to distinguish between the two claims “I am buying Bitcoin” and “I am investing in blockchain technology.”

The blockchain is a distributed ledger system which offers transparent recording of transactions (or any data) without the backing of any central authority.  It is an extremely interesting technology which holds great promise.  It could, for example, be used to create corruption-resistant property ledgers.  That would be of great benefit, not least in combatting money laundering.

Bitcoin is termed a “cryptocurrency” even though it does not fulfil the roles of a currency in that it is not readily convertible and it is not a stable store of value.  It is used to reward the miners who maintain the blockchain on a widely dispersed set of servers.  However, it is clear that the blockchain and Bitcoin are not identical.

An objection has been attempted here by a Bitcoin proponent that it is not possible to have a blockchain without a cryptocurrency.  There are a number of readings of that, but on the obvious two, the claim is either false, or true but misleading.  If the claim is read as “you cannot run blockchain code without also generating a cryptocurrency” then it is false.  There is no reason why the blockchain code could not be run with the cryptocurrency elements redacted.

If the claim is read as “it is necessary to compensate the miners, ” then it is true.   However, the miners could be paid in $.  Or the blockchain could run in the cloud, or in many clouds.  That would carry some costs, but this is not a problem.  It would even be possible to compensate the miners in a cryptocurrency which was pegged against the $.  There is no need for the cryptocurrency to appreciate and definitely not to gyrate wildly.  I therefore conclude that the objection fails.

There is one positive property that Bitcoin possesses.  It is true that it is generated using the blockchain technology.  It is also true that the blockchain technology is extremely interesting, and being pursued widely by a number of serious players.  By contrast, no professional, experienced or institutional investor is holding Bitcoin.  Novice investors fall prey to the Halo Effect when they think that the one positive quality of Bitcoin is a measure of its overall quality, when in fact it has no other redeeming features at all.  This will prove to be a very expensive cognitive bias when the Bitcoin crash comes.

I discuss the effects of cognitive biases like the Halo Effect on financial market participants in my new book:

The Picture Superiority Effect And Financial Markets

The Picture Superiority Effect is one of a large number of cognitive biases that affect how we think and act. It is important to know about these biases in the context of financial markets because they can impair our decision making but also inform traders on how other market participants may react

As in previous posts featuring on this blog  ( https://timlshort.com) I will first outline a cognitive bias drawing from the relevant psychological literature and then describe how that plays out in financial markets.  My basic point throughout is that it is critical for market participants to know about these unavoidable biases for two reasons.  Firstly, knowing about them is the first step to being able to recognise when they are operative and assessing whether they have resulted in an optimal decision, with specific relevance here to trading decisions.  Secondly, since no-one is free of these biases, traders can expect that other market players will be influenced by them and trade accordingly.

The Picture Superiority Effect is relatively straightforward.  What psychologists have found is that people find it easier to remember images than words.  There are different opinions in the literature as to why this might be.  In my view, the effect is likely to be explained by our preference for the vivid and concrete over the dull and abstract; but in fact, the causation is not that important for our purposes here.  We just need to know that everyone remembers imagery more than text.  This is probably no surprise; in particular in the age of social media, as pictures are shared more widely on social media than text (and so we might surmise that there is also a Video Superiority Effect which is even stronger).

There is some discussion as to how age interacts with the Picture Superiority Effect.  Early researchers found that younger people recalled more pictures than words while older subjects did not, suggesting that the Picture Superiority Effect exists only in younger people.  More recent work, however, appears to find the exact opposite.  Given the general improvement in experimental methodologies that occurs over time and the parallel increase in knowledge, I would say that the more recent studies are more likely to be correct.  But that observation remains subject to further confirmation/disconfirmation.

As a result, there have been some suggestions that what is happening is that images work as a compensation mechanism for older adults who are experiencing memory deficits.  So the overall story may be that younger people are prone to the Picture Superiority Effect, middle age adults are less prone to it, and then older people embrace the effect for compensation purposes.  This would mean something like older people are deliberately relying more on pictures to assist them in remembering things.  There is also advice from the intelligence community (!) to the effect that the way to remember a lot of items without writing them down is to modify a visual memory of a very familiar location, such as one’s home, and add to it strange and striking items which represent the data one wishes to remember.

All of this means that everyone who is involved in financial markets can expect that the Picture Superiority Effect will play a role in their thinking to a differing extent at various life stages.  How would this work?

This type of point — how do cognitive biases affect our performance in financial markets —  is one I discuss at length in my book:


One example I give there is related to imagery, although I am actually discussing a different cognitive bias called the Availability Heuristic.  The example is the photos and video with which we are all familiar of people who had been fired from Lehman Bros. after it collapsed in the crisis.  These pictures and ones like them are extremely easy to remember.  In fact, they are difficult to forget.  This sort of thing might make you unreasonably averse to buying bank shares.  Similarly, pictures of Elon Musk looking depressed might make you avoid TSLA stock.  There may or may not be good reasons for avoiding such stocks (my view is the opposite at present) — but what is 100% clear is that if you read a story about banks or TSLA and only recall a picture of a fired banker or a sad Elon Musk, you have not retained very much which is useful in terms of making a market decision.  Even if you give equal weight to the picture and the words, you are probably still weighting the evidential value of the total information value available to you wrongly.

It is probably wise to set aside the limited information value represented by imagery and focus on the data — which may of course be presented graphically without being just a photo.  If you want to discuss these and other concepts mentioned in the book, or for more information about the book, you can Send Mail

Negativity Bias And Financial Markets

Negativity Bias is one of the powerful and ineradicable aspects of human psychology, which has important effects on the performance of stock market investors

Negativity Bias is perhaps the most expensive and dangerous item in our psychological repertoire insofar as it impacts on our performance in financial markets.  In this post, I will outline the bias and then discuss how its effects play out in markets.

Negativity Bias is reflected in the finding that negative events affect us much more strongly than positive ones.  I should immediately distinguish this effect from the bias I was discussing in my previous post (https://timlshort.com/2017/11/05/attentional-bias-and-financial-markets/)  There, I discussed the subset of Attentional Biases that operate in people who are depressed or anxious, such that they pay more attention to mood congruent information.  Negativity Bias differs from that in that it affects everyone, irrespective of mood and psychiatric diagnosis.  Some forms of Attentional Bias do that as well, but in the previous post I considered only mood-related variants thereof.

The bias can be seen as a mis-calibration, like many of our cognitive biases.  There is a “right-size” for the amount of impact that an event should have on us which is related to the “intensity” of that event.  Obviously, intensity is rather a slippery concept here, but we can give some meaning to it with illustrations.  Two negative events of different intensities would be stubbing one’s toe and breaking an arm.  Two positive events with differing intensities would be receiving a birthday card or falling in love.

So without Negativity Bias — and with what we might regard as a purely rational response to events — there would be a link between the intensity of an event and its impact upon us.  There would not be a link between whether the event  was positive or negative and the size of the impact of the event on us.  This does not mean that it is strange that we react negatively to negative events and positively to positive events (in fact, it would be very strange were this not so!).  What it means is that it is odd that we react more strongly to negative events than we do to positive events of the same intensity.

This was measured by experimental social psychologists in financial terms using sums of money.  It was found that the mis-calibration is very strong: the factor is about 2.5.  In other words, we react 2.5x as strongly to losing $10 as we do to gaining $10.  In other other words, losing something is much, much worse than gaining the same amount.

The Negativity Bias then will have huge impacts on our risk aversion, and that, it is well known, is a key driver of performance in financial markets.  Many people perform extremely badly as a result of excess risk aversion.  In the current environment, it is unwise to be holding substantial amounts of cash.  People should have some emergency funds of course.  But if CPI is running at 3% and interest rates paid by the banks are more like 1%, then anyone holding cash in the bank is basically prepared to pay 2% a year in order to avoid any risk, as they see it.

As I see it, paying to avoid risk like this is just concretising the risk.  You don’t gain: you just get the loss in a form you can pretend doesn’t exist.  It would be much better — and in fact less risky understood correctly — to invest in something.  There is an enormous spectrum of assets and geographies out there from equities in the US, Japan, Emerging Markets and Frontier Markets to bonds issues by governments, investment grade corporates and junk corporates.  There are thousands of ETFs available offering the widest imaginable range of exposures.  Overcome your Negativity Bias and pick one.

I discuss in much more detail the important effects in financial markets of Cognitive Biases like Negativity Bias in my new book:


If you want to discuss these and other concepts mentioned in the book, or for more information about the book, you can Send Mail




Attentional Biases And Financial Markets

Attentional Biases are operative in everyone’s psychology; they can affect performance in financial markets because they control what information sources we consider

Are happy people better at picking up information that will make them happen?  Do sad people do the opposite?  Have you wondered how your mood can affect your behaviour in ways you don’t know about?  All of this is true and can be explained by considering one form of a Cognitive Bias called Attentional Bias.

We are subject to approximately 150 Cognitive Biases, at the last count.  All of them affect our thinking without us necessarily knowing too much about when they are at work or what the results are.  My project initially is to list and describe these mental subroutines before critically examining them and assessing how they work in a market environment.  The objective is to allow market participants to look out for the operation of Cognitive Biases in their own thinking and trade on the expectation that they will also figure prominently in the thinking of other players.

One of the most important Cognitive Biases is known as Attentional Bias.  It comes in several forms, but all of them have in common that they systematically slant which information we pay attention to.  Obviously this can be expected to have dramatic effects on thinking and market outcomes.  In this post, I will first describe Attentional Bias and then outline how it might play out in a market setting.

Much of the psychological literature on Attentional Bias looks at what we can term mood congruency.  The basic idea here is that we are more likely to look at information which fits our mood.  So, anxious subjects are more likely to look at anxiety-inducing information and depressed subjects are more likely to consider depressing information.  Clearly this is already rather unhelpful for such subjects, but my aims here are only to look at what this might do in markets.

This is widely important because generalised anxiety affects a significant proportion (estimated at between 5% and 30%) of the population.  This is people who are more-or-less anxious more-or-less all of the time. Since it is a significant  minority, it is likely that some of these subjects participate in financial markets, although it is possible that some anxious individuals will self-select out of stock markets.

Depression of sufficient gravity to merit a psychiatric diagnosis affects about 1% of the population; many more people will experience a less severe depression or a more episodic form.  Again, we can expect plenty of market participants to be depressed when trading.

Experimental investigations of mood-disorder linked Attentional Biases have focused on reaction time studies.  A pair of words was briefly presented to experimental subjects on a computer screen.  Sometimes, one of the words was replaced with a dot, which was the signal that a button should be pressed.  The time it took for subjects to press the button was recorded.  It would typically be in the range of several hundred milliseconds.

Sometimes, the other word presented on the other side of the screen to the dot was a threatening word.  The word could be socially threatening (‘humiliated’) or physically threatening (‘injury.’)  The experimenters found what is known in psychology as an RT spike — or a delay in reaction time.  People took longer to see and react to the dot if a threatening word appeared on the other side of the screen.  These effects were quite large.

Perhaps most interestingly, the RT spikes were larger for anxious or depressed subjects, especially if the threat word was specifically related to either anxiety or depression.

What Effects Of Attentional Bias Should Such Individuals Be Aware Of?

It is obvious that such effects could impair traders on a trading floor who are making rapid trade decisions themselves.  Information near their field of vision which is threatening — such as a negative Bloomberg headline — could grab the trader’s attention and cause a delay in response time even if it is unrelated to the trade under consideration at the time.

While this is a real issue, I want to consider non-professional traders as well. In general, day-trading is best avoided as 85% of day traders lose money.  (Day-trading is popular among people new to investing.  It is called that because the aim is to minimise risk by not holding any positions over-night.  However, the necessarily short-term nature of this approach means that one can really only benefit from ‘noise’ in stock movements and there is no way to rationally forecast noise.  Relying on luck is even worse in markets than elsewhere because the punishment is swift.) It is better to be a buy-and-hold investor.  What effects of Attentional Bias should such individuals be aware of?

If one is episodically depressed or anxious, then these are not times to be trading.  Negative mood-congruent information will grab attentional resources and make traders much more likely to exit positions.  This may or may not be the right decision to make; what is clear is that such a decision should be made rationally and with a fair and open consideration of the relevant data.  Often this will not be what everyone else is doing, so my approach lends itself naturally to a contrarian investment stance.  There are other good reasons to be a contrarian investor, including that it fits with a long-term approach — so it is not something much engaged in by day-traders.

If someone is permanently depressed or anxious, then treatment should be sought and one should abstain from trading until an improvement is seen.  If no such improvement can be achieved, then I am sympathetic, but I would suggest hiring financial advisers in that circumstance.  It would be one thing less to be concerned about and would likely have more optimal outcomes, despite the extra fees involved.

I discuss in much more detail the important effects in financial markets of Cognitive Biases like Attentional Bias in my new book:


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In Financial Markets, Relying on the “Wisdom of Crowds” Can Be Very Risky

We all tend to do what everyone else does. This saves time and effort on many occasions, but it can cost you a lot of money in financial markets

We all tend to do what everyone else does, even when we can see that everyone else is wrong.  In financial markets, this can lead to bubbles and herd behaviour.  It is important to be aware of this tendency within our psychology, so you can at appropriate times avoid joining in the bubbles.  It is important to do this because you will lose a lot of money if you participate or, once in, fail to exit before everyone else does.

In this post, I will briefly outline the relevant psychology so you can both look for the effects in your own thinking and expect those same effects in other market participants.  This will improve your trading.  I discuss this bias and many others in a financial markets context in my new book (see link below).

Conformity Bias is also known in the literature as the Asch Effect, after the pioneer experimenter.  Asch obtained really surprising results, which will show you how strong this effect is.  He had a naive member of the public sit in a room in front of a blackboard with four other people.  The member of the public thought that the other four people were also naive members of the public, but in reality they were actors who were going to behave in a specific way suggested by Asch.

A line of a certain length was drawn on the left side blackboard.  Some other reference lines of different lengths were drawn on the right hand side.  One of them was clearly the same length as the reference line and all of the rest were clearly much shorter or much longer.  Asch then had the people say which of the test lines on the right was the same length as the reference line.

If the naive member of the public went last and heard all of the actors give a wrong answer, he tended to go along with them even though the answer was obviously and clearly wrong.  Amazingly, Asch found that most people gave an obviously wrong answer some of the time and also that some people gave wrong answers most of the time.

This is how strong Conformity Bias is: it works even when the answer is obvious.  Imagine how much more dangerous it is in financial markets where the answers are much less clear cut and much ambiguous and conflicting data must be weighed.

I think this is one factor behind a lot of famous bubbles in financial history. Right now, it looks to me as though the cryptocurrencies, most notably Bitcoin, are exhibiting bubble characteristics.  One sign of this is the enthusiasm of a particular football manager, one noted for his lack of financial acumen, for Ethereum.  I do not say this is a scam; I merely suggest that one should look to more fundamental underpinnings for value than “everyone likes it and it has gone up a lot.”

Avoid Conformity Bias and trade better by trading the other way when you see it happening.


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Bad Arguments for the Permanence of Bitcoin

I will rebut various elements of a rather poor article arguing that Bitcoin will be around forever.  It might well be — I don’t know — but I do know that this article does not add any light to the topic.  It appeared here:


The random banker bashing in the headline might give you an initial suspicion about who is likely to be right here.

The first rhetorical question the article asks is “Would Jamie Dimon really sack traders who netted a 1,000% return in less than two years? The bank’s shareholders wouldn’t approve”

The answer to this is definitely yes.  Return alone is an inadequate assessment of trader performance.  We must look at risk-adjusted return. A guaranteed 10% return is better than anything lower than a 50% chance of 20%.  If the trader made his 1000% by betting on a single horse, he took an enormous risk to make his 1000%. The shareholders would certainly approve of Dimon sacking such a trader and in fact would demand it.

We then move on to a ‘fake news’ type criticism in which the author attempts to show that Dimon is biased.  He writes “Although JP Morgan was by no means the most leveraged of the banks, it still took bailout money, and, as its CEO, Dimon and bitcoin will inevitably be philosophically opposed.”  So this is a set of claims which don’t stack up.  Firstly, JP was bailed out post-crisis (fine).  Secondly, Bitcoin was invented in response to this crisis (I don’t know, but let’s accept this).  Thirdly, JP must be opposed to everything that happened as a response to the crisis.  Conclusion: JP is opposed to Bitcoin forever.  Premise Three is obviously false.  What can be said to even make it plausible?

The next section of the article accuses Dimon of not understanding Bitcoin because he says it is a fraud.  The author then admits that Bitcoin is in fact extensively used for fraudulent and criminal purposes but it is not itself a fraud.  This is parallel to those arguments against gun control which say that guns don’t kill people, people do.  I will leave that there.

I will close by criticising a remarkable paragraph which packs in a lot of errors and bad arguments.  The author writes: “Dimon declares that we will use the technology – blockchain technology – but that bitcoin will be shut down. That’s like saying we will use football pitches, but football players will be banned. One comes with the other. In any case, you can’t just shut bitcoin down. It’s a decentralised, distributed network. That’s the whole point of its design. There is no central point of failure.”

This is very strange.  Take the football analogy first.  There are two major problems with it.  As a parallel, it may or may not work.  Assume it works.  Let’s be generous.  There are alternative uses for football pitches.  They have been used as prisons and they were used as holding centres post-Katrina.  Other uses could be imagined.  We could land helicopters on them.  So even if Bitcoin ls like playing football and the blockchain is like a football pitch, we can do other things with football pitches and we could do other things with the blockchain.  Strikingly in fact, this is where much of the excitement exists.  There are many potential extremely useful applications of a distributed ledger technology such as property registers and shareholder transaction records.  These would be interesting because they would be highly transparent and resistant to corruption and bureaucratic sloth.

The second argument in here is equally poor.  The claim is that you can’t shut Bitcoin down because it is decentralised.  What this may actually bring out is that you cannot shut down the servers behind Bitcoin because they are decentralised.  But that isn’t what Dimon says.  He says that “There will be no currency that gets around government controls.” What if governments made Bitcoin possession and use illegal and banned its use in any transactions?  They could do that and then what Dimon has pointed out is true but no-one has to go around shutting down distributed servers.

I conclude that the author has done nothing to show that Dimon is wrong or that Bitcoin is not a bubble and will persist.  If you would like to read a higher standard of discussion on financial markets which includes more rigorous argument and some familiarity with the facts, you will want to buy my new book: