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the psychology of successful trading

Plan Continuation Bias In Financial Markets

What is Plan Continuation Bias?

Plan Continuation Bias is a major factor driving investor losses in stock and other financial markets.  For example, many investors tend to hold on to losers for too long when they should cut their losses.  In this article, I will outline how this bias permeates our psychology by looking at how it works in air crashes, and then go on to examine its effects in financial markets. Investors will learn how to address this bias and improve trading performance.

Plan Continuation Bias, simply put, is the tendency we all have to continue on the path we have already chosen or fallen into without rigorously checking whether that is still the best idea or even advisable at all. Operating with this bias, as with the other 180+ biases that are an unavoidable feature of our psychology, is generally a good idea. We simply don’t have the time to constantly re-analyse our decisions.

Plan Continuation Bias in Plane Crashes

Berman and Dismukes wrote a NASA report on this problem, which they describe in a brief article. They define Plan Continuation Bias as follows:

a deep-rooted tendency of individuals to continue their original plan of action even when changing circumstances require a new plan

Berman and Dismukes “Pressing the Approach” Aviation Safety World, December 2006, pp. 28–33

The authors describe two air crashes which were in their view caused by the operation of Plan Continuation Bias. Flight 1420 into Little Rock, Arkansas crashed in June 1999 because the pilots ignored alarms and persisted with an approach in difficult weather conditions. Similarly, Flight 1455 crashed in March 2000 in Burbank, California because the pilots continued with an approach even though they knew that they were flying at 182 knots which they knew was 40 knots above the target touchdown speed.

It is very easy for us to sit here on the ground and do armchair flying. We would not have made these errors we say to ourselves, wrongly. If we saw that we were flying too fast or that there were multiple alarms sounding, we would abort the landing and go around. This is not difficult to do. This quick and wrong simulation of the pilots misses out many germane factors. The pilots are under some pressure to land planes quickly and efficiently for cost reasons. There are no guarantees that going around will improve weather conditions. But ultimately, the major factor in these crashes in human cognitive bias.

Plan Continuation Bias has significant effects on the psychology of all of us. As the authors observe,

Our analysis suggests that almost all experienced pilots operating in the same environment in which the accident crews were operating, and knowing only what the accident crews knew at each moment of the flight, would be vulnerable to making similar decisions and errors

Berman and Dismukes “Pressing the Approach” Aviation Safety World, December 2006, pp. 28–33

Effects in Financial Markets

Plan Continuation Bias is just as relevant a factor in making decisions in financial markets. We can be just as liable as the pilots described above to sticking to the plan. We bought a stock, it was a good idea at the time, and we continue to hold it even though the original reasons for it being a buy have dissipated or not transpired.

In trading, while no one is going to be killed, it is still an environment in which decisions need to be made on an inadequate data set and sometimes under time pressure. It is also going to be a highly charged situation emotionally. The inadequate data set could result from factors such as the impossibility of predicting the future or the sheer scale of the operations of a listed company. Time pressure is particularly prevalent in day trading, but even more long-term investors are susceptible to effects such as feeling that “money is burning a hole in their pocket” and they need to put a trade on right now. The emotional charge comes from losing money. We are all highly averse to losses — in fact, we seem to be 2.5x more averse to losing money than we favour gaining the same amount. It hurts to lose. It challenges our self-perception.

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How To Prevent Plan Continuation Bias From Impeding Your Stock Market Performance

  • Try to minimise the effects of an inadequate data set by either doing more research or not trading unless you are certain or can set downside limits. Don’t take trades where it looks like you need to know everything about a company or where you think other market participants can easily know more than you. Avoid trading assets you don’t understand like Bitcoin.
  • Don’t do anything under time pressure. You will need to get used to FOMO because “just getting one more trade on” will kill you quite quickly. It’s fine to miss things. It is much more important to get a small number of decisions right than to try to catch every opportunity
  • Don’t trade when feeling strong emotions and try to trade emotionlessly. This is hard to do. It is particularly hard to learn this from practice/dummy accounts. It simply doesn’t hurt very much to lose play money. You should still start here, but be prepared for real life to be much harder. Get more Zen about it. It doesn’t matter if a trade loses as long as you are up over the year.

See also: https://timlshort.com/2020/08/15/omission-bias-and-financial-markets/

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the psychology of successful trading

Women Traders Are Better: More Data

Introduction

We now have more data showing the women traders are better.

Warwick University Business School (“WUBS”) have conducted a fascinating study on the investment performance of men and women.  See: WUBS: https://www.wbs.ac.uk/news/are-women-better-investors-than-men/

They show that women perform significantly better with a good sample size and temporal range.  They make some interesting remarks on why this might be.  I think I can add some extra psychological depth to this — so we can see that female traders appear to have some quite deep natural advantages and they should feel encouraged about managing their own investments.

What WUBS did was collaborate with the share dealing service offered by Barclays Bank.  They looked at 2800 investors over three years.  There are various ways of measuring stock market performance, but one of the most common is to compare the performance of a portfolio with a relevant stock market index.  (I explain what a stock market index is here: What Is A #Bear #Market?)

Data on Women Traders

It is quite hard to outperform an index consistently.  This fact is what lies behind the recent strong growth of tracker funds.  You may as well buy the index if you can’t beat it.  The results from the WUBS study showed that women consistently outperformed the FTSE-100 index and men did not.  The male investors returned 0.14% above the index which is basically statistically consistent with having performed equivalently to it.  However, I suspect that these investors would have been better off just buying the index rather than paying a lot of trading fees to obtain the same performance.

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The female investors outperformed the FTSE-100 by a massive 1.80%.  This may not sound much, but it is actually huge.  Done over a lengthy period, it would lead to significantly improved results.  Let us assume that the FTSE-100 returns 5% a year.  If you started with £10,000 and performed as the male investors do, you would end up with £45,000 after 30 years.  (It is always important to think long term in the stock market; to prefigure part of the answers I will discuss below, the women seem to understand this.)  

The female investors would turn £10,000 into £72,000 over the same 30 year period.  That is a huge improvement over £45,000 and bear in mind that the female investors have taken the same risk, making it even more impressive.  (One caveat is in order here: no one performs this consistently over the long-term–if they say they do, it is a huge red flag.  Remember Madoff?  But the point stands.)

How are female investors outperforming?

WUBS and Barclays set out a few reasons which could explain the outperformance.  One of them is the one we already know about.  Women are less over-confident than men.  I explain how that works here: Women Are Better Traders Than Men.  In summary, women tend less often to think that their new idea is brilliant and then abandon their previous idea before it has had time to work.  Men on the other hand just get extremely convinced about their new sure-fire idea and go with it.  Interestingly, women’s lack of over-confidence is not manifested in what they say about their beliefs.  They just don’t act on them as often.  We could discuss philosophically what that means about our account of belief — but the key point is that women are less likely to trade in deleterious ways!

What Mistakes do Women Traders Avoid?

Several reasons are suggested.  There are three that I think are especially interesting.

  • Women stay away from terrible ideas like #Bitcoin
    • I have not seen any data on how many women bought into Bitcoin, but is is certainly consistent with my claim in the second post above that female investors have stayed away — we know that women did not vote for Trump very often and much less so if they had college degrees.  In addition all of the online hysteria (!) from Bitcoin boosters appeared to be from deluded male market participants.
  • Women avoid “lottery style” trading
    • It has always struck me as insanity to own a lot of penny stocks which are supposed to return ten times the amount you invest in a year because this almost never happens. A far better approach is just to sit still in major stocks for a long time, with maybe some spicy options for fun in a minor section of the portfolio.  The problem with picking the next Amazon (or Bitcoin, for that matter) is that you can’t.  You would have to own a million penny stocks for each Amazon or Apple.  So this strategy is exciting but completely unsuccessful.
  • Men hold on to their losers
    • It seems that women are better at getting out of something which hasn’t worked.  This came very close to home for me.  Infamously, I am still holding Deutsche Bank stock, partly because I recommended it in my book as a contrarian trade.  Banks are supposed to trade at at least book value (in fact, 2.0x before the crisis).  Because it is buying something for a quarter of its value.  That hasn’t worked for me yet — maybe a female trader would have got out of this position a long time ago.
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the psychology of successful trading

Trading Psychology: Optimise Your Performance

Why is Trading Psychology Important?

Understanding trading psychology is one of the most important but also less often done tasks for investors.  Of course, everyone realises that they need to analyse the investments they are considering buying.  But many traders do not realise that winning in investment is mostly about successfully predicting what other market players will do.  Before they do it. And that is a psychological task.

https://timlshort.com/wp-content/uploads/2018/01/tradingpsychology.mp4

Most of the advice on the internet is not really psychology.  It is quasi-psychology.  You might get famous traders telling you things like “I always played tennis in the morning before my best trades to make sure I felt good.”  This is useless.  By all means, study what these guys do. You may get insights into how they look at opportunities and maybe any tricks they have for bouncing back from a loss.  But famous traders don’t have any specific training in psychology. So, if you are specifically wanting to improve your own trading psychology, adopting their tips (such as the tennis one above) won’t really help you in achieving that goal.

What you need to look at is the psychological literature. This is published in the academic journals. You also need to do that having spent a decade on the trading floor. Fortunately, you don’t need to do that yourself since I have done it for you. So all you need to do is read the book.

The other sort of person who cannot help you is someone merely described as a psychologist. That’s better than nothing. But they need to be the right sort of psychologist, as I will set out in the next section.

Is that the right sort of psychology?

There are some actual psychologists who write on the topic and are experts in the field.  But be careful about their specialisms.  Someone who is a clinical psychologist may be an expert in schizophrenia. They may however not necessarily know any other aspects of human psychology.  And of course these experts do not have any serious trading experience. So they definitely can’t help you improve your trading psychology. Unless you have schizophrenia. But in that case, you have more pressing issues to attend to than the performance of your portfolio.

There are also a lot of completely unqualified people who write on these topics. They don’t know any psychology and they don’t know anything about trading. These individuals are all over the internet. But you should not waste any of your time on them.

The right sort of psychology is actually called Theory of Mind. This is the label for the way we predict and explain the behaviour of others. This is exactly the area in which I specialise. You can check that out in my first book: https://www.amazon.co.uk/Simulation-Theory-psychological-philosophical-consideration-ebook/dp/B00S1DDMKI

To identify the right sort of person, you need to ask two questions. Does this person have significant trading experience? Are they qualified in a related field?  I am one of these people.

How To Optimise Your Psychology

To convince you of this, I will outline my ideas on how to optimise your trading psychology.  The first thing to know about is that we have a lot of cognitive biases. (Here’s a list on Wikipedia: there are hundreds! https://en.wikipedia.org/wiki/List_of_cognitive_biases )

These are mental shortcuts that are often useful when we want a quick and dirty answer. However, they are often very unhelpful when we are trying to get something right.  One example is Confirmation Bias. This is where people look only for evidence that supports what they already believe.  There have been many robust psychology experiments published, that show time and time again that we do this often.

This isn’t something which is optional. Cognitive biases are a fundamental part of our wiring. More intelligence does not make you immune to biases. At least if you know about them though you have a chance to counteract them.

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The first thing to note here is that if you use this bias when making your own trading decisions, you will make bad decisions.  Every time!  So you will definitely not be optimising your trading psychology.  But here’s the key point: everyone else in the markets will be doing it too.

So what does that mean?  It means you need to know about Confirmation Bias. You need to think about it in a market context.  Look out for it in yourself and be careful.  Expect it in other market players and trade accordingly.  

That’s how you stand the best chance of optimising your trading psychology. 

See Also: The Illusory Truth Effect And Financial Markets

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the psychology of successful trading

What Is A Bear Market?

People often ask what the common stock market terminology of bullish or bearish means.  While these have standard meanings in normal speech — bullish being positive or optimistic, and bearish being the opposite — at least the term “bear market” has a precise technical definition in the arena of stocks.  I will explain this here.

The formal definition of a bear market is a market that has declined 20%.

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How to Understand the Definition of a Bear Market

The first item to clear up on the way to understanding the definition is “what do we mean by a market?”  Normally people will be talking about a particular stock market index, such as for example the Dow Jones Industrial Average (“DJIA”), the S&P 500 or the Nikkei-225 (“N-225”).  So now we want to know what a stock market index is.

Individual shares go up and down all the time.  One cannot say what is happening in more broad terms to “the market” by looking at single shares because of this volatility.  So instead, one looks at a basket of shares.  That is what an index is: a basket of shares listed in a specific location.  There are thousand of these, and they can be selected in many different ways.  

Illustrating a Bear Market Using the Dow Jones Index

To illustrate this, the DJIA is a basket of 30 major US shares that are selected so that they represent a good spread of major US stocks in different sectors such as computers, aircraft manufacture and banking.  The S&P 500 is a broader basket of shares issued by the 500 largest public companies listed in the US.  The N-225 is somewhat different as it is made up of the 225 largest stocks listed in Tokyo.  It is price weighted, meaning that more expensive stocks will be more heavily influential in the movement of the index.

So, put simply, if all of the component stocks in the DJIA go down 20% in a period, the whole index will also go down 20% over that time.  Since this index and the others are a broader measure of market sentiment than any single stock, if the DJIA goes down 20% in a period, we can say that it was a bearish episode for the market.  Since that is an approximate measure of the health of blue chip US equities, one would also be justified in saying that that period was a bearish period more generally for major US companies.

The DJIA has been published since 1896.  The graph looks like a long uptrend punctuated by occasional bear markets.  You can see this below.

People tend to talk less about the technical definition of a bull market.  They will often use it more colloquially to just mean “stocks are going up.”  But if one wanted to be precise, it would just be the opposite of a bear market.  It would mean that a particular index had increased by 20% from a trough.

See Also:

Why #Value Investors Should Buy #Bank Stocks

What Is “Theory Of Mind?”

Cognitive Biases And How They Affect Stock Markets

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the psychology of successful trading

Investment Styles: Value Investment

What are Investment Styles?

There are two major types of investment styles which take completely different approaches.  They are value investing and momentum investing.  The former, also known as contrarianism, seeks to find cheap assets to buy.  It is called contrarianism because often it involves looking for assets which are cheap because no one likes them.  Momentum investing is simpler.  This simply observes that often, assets that have been performing well continue to do so.  So investors adopting this style just look for assets which have gone up and hope that they will continue to do so.

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Investment Styles: Value

I think the best investment style is value investing.  One reason for this is because the problem with momentum investing is that assets which have done well continue to so until they don’t.  There is no way to tell when something which has gone up will stop doing so.  And we definitely know that nothing will appreciate forever!

The difficulty with value investing is knowing when an asset is cheap.  In the early days of investing, the concept of book value was very useful.  This is simply the accounting value.  If a company owns a factory and some machinery, the book value will be close to the value for which the factory and the machines could be sold. If you can buy a share, or a slice of the company, for less than the book value per share, you should.  

One top course is: https://online1.gsb.columbia.edu/value-investing

Book Value

Book value is still very useful on many occasions.  But modern companies are very complicated, and often much of what they do cannot be valued simply.  A lot of their worth might be tied up in software, for example, which is harder to value than a building.  Or they might own a lot of IPR — intellectual property which again, is intangible and hard to value.  But the effort is worth it.  Finding a cheap company to buy is one of the best ways to trade successfully. 

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Psychology as an Aspect of Investment Style

I have written a lot about the importance of psychological factors in investing.  It is absolutely crucial that you understand these, for two reasons.  Knowing about your own psychology will help you understand and improve your decision-making processes. It will be especially valuable to know when cognitive biases are likely to cause you to make errors in evaluating investments.  But just as important is knowing how other investors will think — after all, they have the same psychology as you do!  And knowing what other investors are likely to think of an asset is the key.  Because you want to find an asset which is not just cheap — but unjustifiably so.  Then you can expect it to go up sustainably.

See also: https://timlshort.com/2018/09/29/value-investment-buy-bank-stocks/ for how to implement this.

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the psychology of successful trading

The Picture Superiority Effect And Financial Markets

Introduction

The Picture Superiority Effect is a cognitive bias. It means that we all tend to remember images more easily than words. We then attach a higher priority to an image in our reasoning about what is likely to happen. This is incorrect and will cause suboptimal trading performance.

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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. Then you can assess whether they have resulted in an optimal decision, with specific relevance here to trading decisions.  Secondly, no-one is free of these biases. Other market players will be influenced by them. You can trade on that basis.

How Does the Picture Superiority Effect Work?

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.  I think our preference for the vivid and concrete over the dull and abstract is the answer. 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 the age of social media, pictures are more widely shared on social media than text. We might also think that there is also a Video Superiority Effect which is even stronger).

Who Suffers from the Picture Superiority Effect?

The short answer is “everyone.” However, evidence suggests some people are more affected.

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.

What Does the Picture Superiority Effect do to Your Trading?

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:

https://www.routledge.com/The-Psychology-of-Successful-Trading-Behavioral-Strategies-for-Profitability/Short/p/book/9781138096288

One example I give there is related to imagery, although I am actually discussing a different cognitive bias called the Availability Heuristic.  For example, take the photos and video of people who had been fired from Lehman Bros. 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

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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.

Conclusion

Im sum, you should set aside the limited information value represented by imagery. Focus on data. Data may be presented graphically without being a photo. But you just want the numbers.

See Also: The Illusory Truth Effect And Financial Markets

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the psychology of successful trading

Simulation Theory

Introduction

Theory of Mind (ToM) is the label for the abilities we have to predict and explain the behaviour of others, by ascribing mental states such as belief and desire to them, or otherwise. There are two major competing theories of ToM: the Theory Theory (TT) and Simulation Theory (ST). TT holds that we understand others by having a theory of them or their behaviour. ST holds that we understand others by putting ourselves in their place. There are also different types of ST. ST(Transformation) holds that I simulate you by becoming you. ST(Replication) holds that I simulate you by becoming like you. Below I briefly address three objections to ST.

ST(Transformation) is Incomprehensible

ST(Transformation) has been questioned. Stich and Nichols provide three possible interpretations of what Gordon’s position might mean, all of which they find unsatisfactory. They note that Gordon has characterised ST(Transformation) as meaning that “we explain and predict behaviour by “imaginative identification” — “that is, [we] use our imagination to identify with others” (Stich and Nichols [p. 91]{Davies95}) in order to fulfil that aim.

“Imaginative Identification”

They quickly dismiss the first interpretation of this. That was the idea that we experience conscious imagery when we simulate on the grounds of phenomenological implausibility. The second interpretation involves consideration of the explanation. Is the intention to cover all or merely some cases of application of ToM?Stich and Nichols think that if the change is made to `some’ then ST becomes “patently true [but] not very exciting, and […] not incompatible with TT”. (Stich and Nichols [p. 92]{Davies95}).

However, since it seems that there are ambiguous cases of use of both TT and ST, the serious defence of either should lie in the claim that one of the theories explains many important cases of application of ToM and not all. So Gordon’s line should escape Stich and Nichols particular charge here.

Stich and Nichols conclude though that Transformation ST involves “imaginative identification with the other” and that this is a label for “a special sort of mental act or process which […] need not be accompanied by conscious imagery” (Stich and Nichols [p. 92]{Davies95}). Stich and Nichols then ask what this means, bringing the charge that they find it incomprehensible.

“If I Were You” In Simulation Theory

There arise here immediate questions which are familiar. We might ask what people mean when they employ the popular locution `If I were you…’ when giving advice. The conundrum is that the person giving advice presumably means “if I were in your position with my outlook and abilities, I would do X.” However, those abilities and that outlook might preclude being in the situation being advised upon.

It does not seem plausible that the locution means “If I were you in your position with your abilities and outlook I would do X.” That is because a). presumably the person receiving the advice already has access to that type of suggestion and b). the advisor will not, necessarily. Daniel phrases this objection neatly when he asks “how much of myself am I to project into the other persons’s shoes” (Daniel [p. 39]{Daniel93}). The answer, of course, is `the right amount’.

What Makes Simulation Hard?

I will use the term S to refer to the subject doing the simulating. O is the target of simulation. S wishes to understand or predict the behaviour of O. In Simulation Theory, S does this by simulating O.

S will not be successful in simulating O if S ascribes to O abilities and experiences that are remote from those of O. That’s true irrespective of whether that profile of abilities and experiences match those of S more closely. Naturally this presents some difficulties for simulation. S’s will find it difficult to simulate O’s who are dramatically more or less intelligent than themselves.

Simulating People Much Smarter Or Dumber Than Ourselves Is Hard

Stich and Nichols may legitimately ask which line Simulation Theory takes on the conundrum. Re-examining the argument above produces the opposite conclusion. S does not want to use S’s own abilities and outlook to predict what O will do. To the extent O has different abilities and outlooks, S’s prediction will be wrong.

A chess grandmaster does not expect a novice player to use the same defence that he saw used against a particular attack in his last world championship appearance. The grandmaster may indeed struggle to reduce his abilities to the correct level. As a practical matter, this will not be a problem. The grandmaster will simply use his vastly superior playing skills to compensate for his lack of ability to predict what strange tactics the novice will employ. He will still exploit weaknesses easily.

In the other direction, the novice player would do well to predict a grandmaster-level defence against his attack. However, this information will not be available. So it seems as though there are difficulties in becoming the O when the O has significantly different levels of relevant ability.

These difficulties seem less marked when considering information asymmetry. This is because information asymmetries are ubiquitous in everyday life. They occur both between S and O and between the same S at different times. Step changes in ability in a single S are either much less frequent or indeed never seen; outside of perhaps some unusual pathologies.

Only Grandmasters Can Simulate Grandmasters

This challenge seems equally strong on both the replication and the transformation views. If S lacks the ability to become a chess grandmaster, then S also lacks the ability to become like one, in terms of ability at least. S has however no difficulty simulating information asymmetries between S and anyone else. That’s true since this is generally not related to ability differences.

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However, we need to remember what the challenge is, exactly. It seems to be demanding to know what is meant by becoming someone else. I have sketched out above what this might mean. Then Stich and Nichols can say that on the above outline, it looks as though Simulation Theory provides a picture on which ToM will fail to produce accurate predictions. That will happen when S lacks some of the relevant abilities or disabilities of O. S will perhaps be more successful when the differences between S and O are those of information asymmetry. Fine: there are systematic errors in ToM. These will need explaining; I will do this in later work.

Simulation Theory(Replication) Involves Impossible Ascriptions

One logical objection brought against Goldman by Olson and Astington is fairly easy for Goldman to deal with. The objection is to charge that Goldman

“argues that the ascription of beliefs to others is done by simulating the other’s state on the basis of one’s own. But […] the only definitive evidence for ascribing belief occurs in the case of ascribing false belief. Yet one’s own beliefs are never introspectively available as false beliefs, so how could false beliefs ever be ascribed to others? That is, how could one see in another what was never experienced in one’s self?”

(Olson and Astington [p. 65]{Olson93}).

No One Experiences False Belief

What do Olson and Astington mean by the surprising claim that no one ever experiences their own false belief? They mean that very quickly on discovering conclusive evidence for the falsity of a belief, we will change that belief such that it is no longer false. Or more precisely, we will eliminate the previous belief since it has been falsified. We will replace it with its negation that is a new true belief. So it is true that we never have current experience of a belief that is false now. That of course, is not what Simulation Theory needs.

The above line does not address some situations of cognitive bias. For example, some people continue to believe for example that Brexit is a good idea. That is despite overwhelming evidence to the contrary. That is lack of adequate processing of evidence. The Brexit voters continue to have the false belief that Brexit is a good idea.

It is only true that we have no experience of our own false beliefs if it is true that we have no experience of our beliefs changing. This is because both of those scenarios require only that we have an ability to use memory with some non-zero accuracy to compare our current belief states with our previous ones. We can see then that Introspectionist ST(Replication) needs such a memory capacity. It is though not committed to the claim that it must always function correctly.

Simulation Theory Cannot Account for Some Developmental Data

Stich and Nichols claim some developmental data can be explained by TT but not Simulation Theory. In developing a response to this objection, we may also learn more about the differences between TT and ST. The data in question derive from a variant of the false belief tests. The experimenters ask children about the beliefs of another child sitting in front of them about the contents of a box. The box is closed. The other child may have either looked in the box or been told what is in it.

The first child will be good at answering correctly that the other child knows what is in the box when the other child has looked in the box. But younger children are bad at answering correctly when the other has child knows what is in the box. Older children — five and up — are good at both tasks. They know that if you see what is in the box, you know what is in the box, but they also know that you know if you are told what is in the box.

Folk Psychology And Simulation Theory

https://plato.stanford.edu/entries/folkpsych-theory/

Stich and Nichols claim that these data are consistent with TT but not with ST. They write that “as children get older, they master more and more of the principles of folk psychology” (Stich and Nichols [p. 262]{Stich93}). However, they say, while it is clear that even the younger children “form beliefs as the result of perception, verbally provided information, and inference” (Stich and Nichols [p. 262]{Stich93}) they do not have the latter two routes to assessing the beliefs of others.

Thus they are not using their own minds to simulate others, thus ST is false, according to Stich and Nichols. Of course, Stich and Nichols can’t have this conclusion. They can claim that these data show that younger children are unable to use all of the capacities available to them to form their own beliefs when simulating others. Their ToM is to that extent immature. Since Stich and Nichols allow that three-year olds have immature ToM, these data do not weigh one way or the other in the TT vs ST debate.

Maturation And Simulation Theory

We might on this picture suppose that the way ST abilities develop as the child matures is that more of the routes to knowledge that the child uses become available for the simulation as maturation proceeds. Perhaps exactly that just is the development in question.

There is a particular time course of development of these capabilities in the case of the child’s own beliefs. There is no reason to presume that the arrival of abilities to form knowledge from perception, testimony and inference are all simultaneous. So one would expect the same as the child’s abilities to simulate develop. This is exactly what we find. Empirical studies confirm that different ToM component abilities develop at different times.

As Farrant et al confirm, “[c]hildren typically pass the diverse desires task first, followed by the diverse beliefs, knowledge access, contents false belief, and real–apparent emotion tasks in that order” (Farrant et al [p. 1845]{Farrant06}). ST isn’t committed to anything by these data. But if it assumes that maturation means the child can bring more of its own abilities to bear when simulating others, ST will to that extent find empirical support.

See Also:

#Proust: An Argument For #SimulationTheory

What Is “Theory Of Mind?”