Wander with me for a moment.
We are all aware with the issue of slavery in early American society. It’s clear and apparent and in so many ways, something we, as a country are still working to resolve.
What I want to explore here is not the topic itself but the model it creates. Especially as it applies to bias and decision making.
Some facts.
The economic model of the south was built on cotton and the need for cheap labor to produce it. This created, in contrast to the northern states, an incentive to see slavery as positive. There was financial incentive to dehumanize African Americans in order to continue to produce wealth at low cost.
This is not a new concept. Much has been written on it and I don’t plan to either compete with or correct it. I simply want to highlight how a slight nudge here or there can produce lasting consequences that often take much longer to correct than we anticipate.
Here is the model :
Incentive (wealth creation) > Moral Adjustment (devaluing human life based on skin color) > Conflict (moral disagreement of adjustment made) > Double Down on Adjustment (Desire to remain in alignment with incentive) > Bias Creation ( cultural normalization of moral adjustment) > Decision Collision (civil war in this case) > Expansion into Long Term Consequences (the clear and long lasting racism of the south created in and by the enslavement of African Americans and the entrenching of bias to do so)
Fun topic. I know.
I am not here to make some major statement, I am here to create for us all a model for how slight reality adjustments create expensive bias. The moral quality of this topic is neither here nor there. What is important is that it was a shift in reality. You could call it a lie. A lie is a moral item and therefor, the bias becomes a moral object. Here is a simpler version.
Incentive – Adjustment – Conflict – Consequences
Many things in history we should learn from. Yes. Many other things we should simply observe, record and try to understand. This particular topic, we can learn a lot from. Especially about problematic bias and how intensely we create them.
Let’s make a modern business application of this simple concept.
Incentive = Increase user traffic and ad revenue.
Adjustment = Increase emotional intensity of headlines even if they become irrelevant to the content of the story.
Conflict = Readers call out “fake news” as stories no longer appear to have bases in reality.
Double Down = Find stories that allow for adjustments that drive user traffic and thus ad rev.
Bias Creation = Readers forget the first adjustment and begin to read polarizing stories which were fielded only for their ability to generate traffic and ad rev through emotional response.
Decision Collision = No idea how this plays out honestly. Maybe in cycles paired to election years?
Consequences = In the age of incredible connectivity and a glorious revolution of accessible information, we’ve soiled both in pursuit of ad revenue.
We now live in a world where Huffington Post became the model for “real news” and journalistic integrity is an expensive hoop to jump through.
I am in not so much comparing the severity of one situation to another. Enslavement of African Americans and media outlet pursuit of ad rev. I am simply highlighting the similar train of thought that has been problematic in both cases. Both will no doubt create fallout and destroy a great human asset.
This pattern of thinking happens constantly in society. I don’t trade markets, I trade people, their beliefs and my own. Therefor, this is very meaningful information to me. It’s meaningful not only because I am exploiting it intraday but because, as a risk manager myself I want to work hard to protect myself from the risk that exposure to this type of thinking produces.
A nudge here. A nudge there.
It all adds up. Often, we don’t want to admit it because we may be embarrassed. We may experience financial consequences. We may just prefer what looks like a more efficient method.
More likely, we’re desperate.
This is where need comes in. Need creates in each of us the desire to round the corners. Nudge the lines. Average things out a bit or in some cases, defend what is fully corrupt. The south was desperate to keep their wealth growing. In the early 2010’s media outlets were desperate to keep funding as readers moved away from print media and towards online. Outlets like the LA Times were bought and sold in rapid succession only to slip into irrelevance in the wake of the new media model built on hype, political polarization and a race to be the first to publish regardless of accuracy.
This is not about a high moral horse either. It’s simply an observation of the reality of human thinking as it applies to incentives and our willingness to manipulate reality to benefit us short term.
Why is it important?
Humans are driven by incentive. Everything you and I do is based on incentive. By default, human decisions will move towards the easiest decision with greatest incentive unless there is reason to override this baseline reasoning. I highlight this in order to create reason to override.
Staying Power
There are few more important concepts in life and business. The fastest out the gate is rarely the winner at the end.
A car crash happens the moment a driver commits to the behavior that produces the crash. It’s a dead-man walking situation. In markets and in life, there are lots of dead-man walking situations. People commit to an idea because it produces short term results but fail to see the longer term consequences and therefor, have resigned to their own long term failure despite producing short term positivity.
Putting on a trade where you don’t have a plan to take the stop is a simple and clear dead-man walking situation no matter how far it goes your way first. I micro version of the above.
It’s not over till it’s over.
I have seen, as I am sure you have as well, many great players play for a time and fall away. This doesn’t signal the end for them but it does signal a reset. I am all for a redemption story but it must be noted that the cost of redemption is far more than the cost of correction. This is all we’re really talking about.
It is cheap to correct and expensive to redeem.
Bias is after all, the one cardinal sin of trading. The one act or thought that must be paid for. The market will reveal it. It will not leave a debt. I offer this idea up simply as a lens to potentially view your own bias, my own bias.
The goal should always be to complete the race and to do it with as many friends as possible. We lose a few, we gain a few. Life’s primary goal should be to help as many finish well as you can.