the psychology of successful trading

Collective Narcissism


Some people claim that “collective Narcissism” explains some episodes where people behave in unexpected ways. For example, they elected Trump and they voted for Brexit. If Narcissism is interpreted in the formal way that psychiatrists do, this can’t really be true. On the other hand, as I will explain, there are ways of constructing the claim such that it reveals some valuable insights.

Theory of Mind

The way we predict and explain the behaviour of others is called “Theory of Mind.”  I explain that here: The short version is as follows.  

There are two major accounts of how we predict and explain the behaviour of others. One is Simulation Theory, where we predict others by simulating them. The other is Theory Theory, where we predict and explain others by using a theory of them. While the second account is the mainstream one, I have defended the simulationist account in my first book, “Simulation Theory:”

The major objection to Simulation Theory has been that it cannot explain systematic errors in Theory of Mind. This happens when people think about the infamous Milgram experiment. Participants are willing to give electric shocks to strangers, while everyone systematically fails to predict this. In addition, we have hundreds of experiments showing such errors predicting the behaviour of others.

Bias Mismatches

I dealt with this objection in my book by suggesting “bias mismatch” as the answer. If the person you are simulating exhibits a cognitive bias and you don’t, your simulation will fail. Cognitive biases are a fundamental feature of our psychology. Everyone has them. There are more than 180 of them.

For example, in the case of the Milgram Experiment, the bias you are not simulating is Conformity Bias. This is also called the Asch Effect. It is basically the idea that people tend to act the same as others. This effect is surprisingly strong.

Everyone exhibits Conformity Bias sometimes. But the observers do not exhibit it in the same way as the participants in the experiment.  In the experiment, the subjects are told very emphatically to proceed with the shocks. The experimenter is an authority figure in a lab coat. The experiment was conducted in the 1960s so people are more likely to do as they are told.  So the effects of Conformity Bias are very strong. The observers do not simulate Conformity Bias. As a result, they are surprised by how subjects behave.

Collective Narcissism: What is It?

Next we come to the Narcissism ideas, which I will situate in the above framework. The claim is that “collective Narcissism” about the greatness of a country causes people to make poor decisions. In the case of the US, they have elected someone who promised to make their country great again. In the UK, they have decided to take unwarranted risks with the trade position. Above all, they have done this without any benefits being available.

Certainly, the claim cannot really be that substantial numbers of people are actually suffering from Narcissistic Personality Disorder. This is because NPD subjects make up around 1% of the general population. This is quite common. Many psychiatric disorders have around a 1% prevalence rate. I think that this is because if it is much less, we cannot see it. And if it is much more, we redefine it as normal!

So 1% of the population is not enough to elect a President or tilt a referendum. However, people can show Narcissistic tendencies. This could be a much larger element of the population. We don’t really have the data to say either way. But we need an explanation of why people voted for Trump and Collective Narcissism is a good candidate.

In order to look at the plausibility of that, let us consider what Narcissism looks like clinically. To help do that, I will now describe the criteria for a diagnosis of NPD.

Informally, Narcissism is excessive self-regard. Though it is perhaps unclear how one would characterise such excess. Subjects are often successful high-status individuals. Sometimes, the individual should have high self-regard.

Criteria for a Narcissism Diagnosis

Formally, four criteria must be satisfied in order for a subject to be diagnosed with Narcissistic Personality Disorder. These are: impairments in self-functioning, impairments in interpersonal functioning, impairments in intimacy and antagonism. Each of the requirements can be met in one of two ways.

Impairments in self functioning could mean excessive reference to others for self-definition and self-esteem. Or goal-setting may be based excessively on the aim of obtaining approval from others.

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Impairments in interpersonal functioning may result in either impaired empathy or by impaired intimacy. Empathy is the ability to recognise or identify with the feelings and needs of others.

Meanwhile, impaired intimacy means that relationships are largely superficial. They exist mostly to serve the ends of the subject.

Finally, a diagnosis also requires antagonism. That is characterised either as grandiosity, meaning feelings of entitlement or self-centredness, or attention-seeking behaviour.

Conclusions on Collective Narcissism

In conclusion, we can agree that many more people than 1% of the population could show tendencies like the above. I also think we can regard Narcissistic tendencies as a cognitive bias. That would be Narcissistic behaviour falling short of the criteria for a diagnosis. This would be much more widely prevalent in the population than the number of diagnosable subjects.

Therefore, if you simulate such people and you do not yourself have the same Narcissistic tendencies about the same issues, you will get it wrong. So we see how the claims that Narcissistic tendencies can explain our failure to predict the explanation of Trump and Brexit, despite abundant data pointing that way, can be because of our failure to account for something like Narcissism in others.

See Also: The US Was Defeated In #Vietnam By Systematic Theory Of Mind Error

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The Bitcoin Crash Will Kill The Trump Demographic


We know that if you voted for Trump, you are more likely to be less intelligent, less educated, poorer and more rural.  I will argue that this leads to a further feature — distrust of experts — which is required to be a supported of either Trump or Bitcoin.  This suggests that the Bitcoin Crash will kill the Trump demographic.

Note that I said “more likely to be []…”  We are talking about two curves here.  It is not certain that you are less intelligent and poorer etc.  It would not be an objection here to say “I have a PhD and I am rich and I voted for Trump.”  To say that would be to commit the Anecdotal Fallacy, which I argued yesterday is also a major feature of the Bitcoin bubble.

Only Amateurs Do Not Expect a Bitcoin Crash

One of the notable points about Bitcoin is that there are no professional, experienced or institutional investors who have invested in Bitcoin.  If that changes, we should all become seriously concerned.

Everyone who holds Bitcoin is an inexperienced amateur.  I put this to a Bitcoin enthusiast, and received the following reply.

Mark Cuban invested big into Unikorn. Peter Thiel invested into bitpay which is a wallet company. Mike Novogratz (former president of fortress investments and partner at Goldman Sachs) runs Galaxy Investments (almost exclusively crypto). Tim Draper bought 30,000 btc in 2014.  And Bill Gates: there are no definitive articles on how much BTC he holds but he has plenty of quotes talking about how it’s the future

I will now show why none of that works.

Mark Cuban and Unikorn

The first point to make here is that it is odd to cite Cuban here since he is on record as saying that Bitcoin is a bubble.  The other problem is that Unikoin, the token involved in this ICO, is not Bitcoin.  (I also believe that almost all of the other ICOs are fraudulent, but I would need a lot more space and time to show that.)  Finally, Unikoin will apparently permit sports betting, so while I do not recommend that, it at least has a theoretical source of value.  Bitcoin does not.


Novogratz and Galaxy Investment Partners have invested into the huge and under the radar Worldwide Asset eXchange (WAX).  This is like selling shovels to miners in the Klondike gold rush.  (Reportedly, Trump’s grandfather ran a Klondike brothel.)  Selling shovels is a great business to be in, irrespective of how many of the miners or Bitcoin holders go bust.  So this again is not an example of a major investor holding Bitcoin.

Tim Draper and 30,000 btc

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This is the only one of the examples which approaches being serious.  We must take it seriously because Draper reportedly invested serious money: $18m.  And he is actually holding Bitcoin as opposed to backing exchanges.  The caveats though are manifold.  First, he lost 40,000 Bitcoin in the Mt Gox fraud, and the fact that this did not give him pause makes me think he is an esoteric thinker.  Secondly, a lot of his remarks concern enthusiasm “for the technology”.  It is very important to keep a clear distinction between Bitcoin — a Ponzi scheme — and the block chain — a very interesting technology.  Thirdly, this is one man against every investment bank, hedge fund, regulator and all the other expert investors in the world.

Discrediting Experts as Diagnostic

I have in fact been told that my 20 year experience of successful investing is a disadvantage, because it means I am unable to understand the “glorious opportunity” allegedly represented by Bitcoin.  There are in fact some advantages to disadvantages, as I argue in my new book:

— but that isn’t one of them.

Bill Gates and the Bitcoin Crash

This is an excellent example of muddled analysis and poor understanding of the importance of precision and sourcing one’s quotes from reputable sources.  (It is no coincidence that Bitcoin supporters and Trump voters alike disparage proper news sources like the New York Times and prefer websites with manufactured quotes.)  We are not actually given a quote from Gates which is the first problem.  

But secondly, it is highly likely that even if Gates thinks the blockchain is the (part of) the future, he is not holding any sizeable numbers of Bitcoin.  Why would he? He does not need to to look at blockchain technologies and he knows that a Bitcoin crash is inevitable.

A distributed transparent ledger, which is what the blockchain is, is indeed a highly interesting piece of technology which would have many very useful applications.  As just one example, imagine replacing property registers with blockchain.  Myriad opportunities for money laundering and corruption would disappear, and be replaced with an efficient technology. The fact that Bitcoin is also built on the blockchain is irrelevant.

Conclusions: Bitcoin Crash Will Kill The Trump Demographic

So none of the arguments described above succeed. They do nothing to deny that the Bitcoin Crash will kill the Trump demographic.

People in this country have had enough of experts

This is actually a quotation from a pro-Brexit politician, but we see the same pattern across the Brexit “debate,” in Trump vs Clinton, in global warming and in MMR Vaccine/autism.  In each case, you need to believe that you are right and anyone educated or with specialist knowledge is wrong.  You also need to believe that those people are lying to you — for no obvious reason.

The quality of the arguments raised by Bitcoin proponents can be seen to be extremely poor.

So now you can decide.  If you invest in Bitcoin, you are lining up with the people who mistrust experts.  If you voted Trump, you did the same thing, because you are probably a climate change denier.  So I think there is a very strong likelihood that many Trump voters are also holding Bitcoin.  

And they are going to pay a heavy price for both decisions. The only thing that will save them somewhat is they are poor. So they won’t lose that much in absolute terms. But it might still be a lot for them.

See Also:

The #Bitcoin Bubble Is Caused By The Halo Effect

The #Anecdotal Fallacy And The #Bitcoin Bubble

Bad Arguments for the Permanence of Bitcoin

The Psychology of Successful Trading: see clip below of me explaining my new book!