3/10/2021 Thread by @Traderknight007 on Thread Reader App – Thread Reader App

Trader knight
Follow @Traderknight007 7,549 followers

14 Dec, 19 tweets, 4 min read

 Bookmark  Save as PDF  My Authors

How even after knowing everything about your work, a series of emotional
judgments can place you in a difficult situation.

A thread on how loss Aversion causes us to take irrational decisions-

An experiment by professor Bazerman of Harvard.

On the first day of class, Professor Bazerman announces a game that seems innocuous enough. Waving a twenty-
dollar bill in the air, he offers it up for auction.

Everybody is free to bid; there are only two rules. The first is that bids are to be made in $1 increments. The
second rule 30 The Swamp of Commitment is a little trickier.

The winner of the auction, of course, wins the bill. But the runner-up must still honor his or her bid,

while receiving nothing in return.

In other words,this is a situation where second best finishes last. Indeed, at the beginning of the auction, as people
sniff out an opportunity to get a $20 bill for a bargain, the hands quickly shoot up, and the auction is officially
under way

A flurry of bids follows. As Bazerman described it, "The pattern is always the same. The bidding starts out fast and
furious until it reaches the $12 to $16 range." At this point,

it becomes clear to each of the participants that he or she isn't the only one with the brilliant idea of winning the
twenty bucks for cheap.

There is a collective hard swallow. As if sensing the floodwaters rising, the students get jittery.
 Follow Us on Twitter!  Tweet  Share

https://threadreaderapp.com/thread/1338496546191503360.html 1/5
3/10/2021 Thread by @Traderknight007 on Thread Reader App – Thread Reader App

"Everyone except the two highest bidders drops out of the auction," Bazerman explained.

Without realizing it, the two students with the highest bids get locked in. "One bidder has bid $16 and the other
has bid $ 17," Bazerman said.

"The $ 16 bidder must either bid $18 or suffer a $16 loss."

Up to this point the students were looking to make a quick dollar; now neither one wants to be the sucker who
paid good money for nothing.

This is when the students adopt the equivalent of football's war-of attrition model. They become committed to the
strategy of playing not to lose.

Like a runaway train, the auction continues, with the bidding going up past $ 18, $19, and $20.

As the price climbs 31 higher, the other students don't know whether to watch or cover their eyes.

"Of course," reflected Bazerman, "the rest of the group roars with laughter when the bidding goes over $20."

From a rational perspective, the obvious decision would be for the bidders to accept their losses and stop the
auction before it spins even further out of control.

But that's easier said than done. Students are pulled by both the momentum of the auction and the looming loss

if they back down-a loss that is growing greater by the bid.

The two forces, in turn, feed off each other: commitment to a chosen path inspires additional bids, driving the
price up, making the potential loss loom even larger.

And so students continue bidding: $21, $22, $23, $50, $100, up to a record $204.

Over the years that Bazerman has conducted the experiment, he has never lost a penny (he donates all proceeds to
charity).

Regardless of who the bidders have been-college students or business executives attending a seminar-they are
always swayed. The deeper the hole they dig themselves into, the more they continue to dig.

This example was from the book, Sway.

This all happened because of Loss aversion bias which even you can relate to as a trader,

When you Buy something at 100 , it goes to 110 and you didn’t sell, when it comes back to 105 you cant sell,and
then you sell it way lower. because you felt again it will go up.

Instead of closing the trade and cutting his losses, the trader continues to wait it out, afraid of losing the money he
has already invested. He tells himself he will get out once he loses a certain amount of money,

but instead of that happening, he holds the trade and let the loss grow.

Traders feel loss 2X the emotions we feel when we are in profits.

How to avoid loss aversion bias-

 Follow Us on Twitter!  Tweet  Share

https://threadreaderapp.com/thread/1338496546191503360.html 2/5
3/10/2021 Thread by @Traderknight007 on Thread Reader App – Thread Reader App

1. Think of long term instead of short term results.

2. A simple way to tackle loss averse is to remind ourselves to ask what the worst outcome would be if the course
action was taken.

Usually, this helps individuals put loss, and the strong associated feelings of loss into perspective and better
rationalize if it’s worth making

a decision or not.

Trading is not only about the conditions those who win from their emotions and biases win in trading.

Thanks for reading till here.

•••

Missing some Tweet in this thread? You can try to force a refresh

 Tweet  Share  Email

 Keep Current with Trader knight  This Thread may be Removed Anytime!

Stay in touch and get notified when new Twitter may remove this content at
unrolls are available from this author! anytime! Save it as PDF for later use!

 Add to "My Authors"  Read all threads  Save this thread as PDF

Try unrolling a thread yourself!

1. Follow @ThreadReaderApp to mention us!

2. From a Twitter thread mention us with a keyword

"unroll"

@threadreaderapp unroll

Practice here first or read more on our help page!

More from @Traderknight007

Trader knight Trader knight

@Traderknight007 @Traderknight007

 Follow Us on Twitter! 15 Dec 13 Dec  Tweet  Share

Overthinking The art of creating problems which weren't The four stages of markets 1 Accumulation 2 Markup 3
https://threadreaderapp.com/thread/1338496546191503360.html 3/5
3/10/2021 Thread by @Traderknight007 on Thread Reader App – Thread Reader App
Overthinking - The art of creating problems which weren t
even there. Thread on How Over-analysis leads to decision
Paralysis-
What is Analysis paralysis? In simple terms, analysis
paralysis is a person's tendency to over-analyze or over-think
upon a decision to such an extent that he/she fails to make a
choice resulting in a paralyzed state of inaction.
Read 12 tweets
Trader knight
@Traderknight007
12 Dec
Patience , A quality needed to be successful in markets. But
when the real capital is put at risk, The patience goes for a
toss. Thread on Why Emotions overtakes patience -
1. Mindsets- Decisions are taken by either the Higher mind
(Frontal lobe) or the Fear based mind . When decisions are
informed by our higher mind, they are more likely to lead to
positive outcomes. decisions driven by survival instincts from
the past can hold us back.
Read 14 tweets
Trader knight
@Traderknight007
11 Dec
Why 90% of the traders even after winning 90% of the times
gives it back to the markets? Has this ever happened to you,
That you are up 10% on the month and you feel crazy, but the
next morning you give it all back to the markets? What
Causes You to Give It All Back? Thread-
1. Euphoria- It is the state of mind in which we can not
perceive risk, In state of euphoria nothing can go wrong. So
when you are in this state of mind, you feel invincible and
Read 10 tweets
Did Thread Reader help you today?
Support us! We are indie developers!
This site is made by just two indie developers on a laptop doing marketing, support and
development! Read more about the story.
 Follow Us on Twitter!
Become a Premium Member ($3/month or $30/year) and get exclusive features!
https://threadreaderapp.com/thread/1338496546191503360.html
The four stages of markets- 1. Accumulation 2. Markup 3.
Distribution 4. Decline Thread-
1. Accumulation phase- This phase starts after the completion
of a downtrend. In this phase the furious selling activity of
downtrend comes to a rest. During this phase there is a
gradual shift from sellers to a more neutral environment .
Institutions starts to show interest in stock, Because they can
Read 15 tweets
Trader knight
@Traderknight007
12 Dec
A man found an eagle’s egg and put it in a nest of a barnyard
hen. The eaglet hatched with the brood of chicks and grew up
with them. All his life the eagle did what the barnyard chicks
did, thinking he was a barnyard chicken.
He scratched the earth for worms and insects. He clucked
and cackled. And he would thrash his wings and fly a few feet
into the air. Years passed and the eagle grew very old. One
day he saw a magnificent bird above him in the cloudless sky.
Read 5 tweets
Trader knight
@Traderknight007
8 Dec
"Start your Trading day with a fresh and empty mind." Ever
faced stress and strong emotions after having loss day and
under-performance for a long time after that? Thread on
Emotion and how to control them with help of trading
journal
Poker players calls it TILT. Tilt is pretty much any reason for
you to trade sub-optimally. Greed and fear are tilts in trading.
When normally you have a stressful day (not in trading) and
Read 9 tweets
 Tweet  Share
4/5
3/10/2021 Thread by @Traderknight007 on Thread Reader App – Thread Reader App

 Become Premium

Too expensive? Make a small donation by buying us coffee ($5) or help with server cost
($10)

 Donate via Paypal  Become our Patreon

  Thank you for your support!  

  Help | About | TOS | Privacy | Covid19 Threads

 Follow Us on Twitter!  Tweet  Share

https://threadreaderapp.com/thread/1338496546191503360.html 5/5