The illusion is a psychological tendency to explain how certain people possess the propensity to compare themselves to other nearby people.
It is a mental introspection process
The contemplation of our feelings, thoughts, and sensations, which means, self-assessment is called an introspection illusion. It is a tendency of cognitive bias when people wrongly assume that they possess a direct insight into the sources of their mental condition. At the same time, they treat introspection of others as most unreliable. In specific situations, such illusions lead them to derive very confidence, but the false justification of their personal behavior, which is known as Causal Theories, and also an inaccurate tendency and the prediction of their mental state in the future.
The illusion is a psychological tendency to explain how certain people possess the propensity to compare themselves to other nearby people. It is a mental Introspection processing state of inference and construction and indirectly infers that those people compare the mental status of other people from their own behavior.
It is a mental weakness, in the illusory state, when people mistake untrustworthy introspection to be legitimate self-knowledge, as a result of an illusion due to superiority feelings over other connected people. To give an example, when every person believes they are not biased and not more conformist than others in the group. They consider other people's introspections and rate those as unpredictable while considering their own as the most consistent and dependable. Even though the introspection illusion hypothesis suggests certain psychological research is yet inadequate to finally decide on the reliability of introspection under normal circumstances.
The illusion of control, and unrealistic optimism of people Investing in Security.
The power along with the illusion of control is so strong that people, at times, turn out the impossible into possible and otherwise, fall short to make it unmanageable. Once they hold power, sometimes they get misguided to indulge in wrong actions. As we observe, certain top leaders and warring commanders of nations frequently underestimate the value of money, time, and living human beings to bring home a certain victory. The leaders of top companies habitually overestimate their personal capacity to bring joint ventures in massive profits. That lead to considerable financial losses for their companies, themselves, and also stockholders. Also, observed many ordinary people consider superiority after getting promoted to higher and powerful positions. Such tendencies, as a result, turn the entire situation very devastating
An optimism prejudice is a pervasive phenomenon. Inaccurate predictions and false beliefs, no matter the way they are formed, falsify the way this world and the related activities going to be. They can be false or true, however, some aspects turn them irrational because, they are not generated on any kind of robust evidence and hence, are not sufﬁciently responsive based on evidence after they are adopted. The falsification, rationality, and inaccuracy are a red herring because we consider everything based on speciﬁc predictions and beliefs. If we take an optimistic view, the predictions and beliefs can be proved to be accurate and true by luck. Still, they are considered irrational. Otherwise, predictions and beliefs can also be rational, yet turn out to be inaccurate and false.
In the stock market and trading premises, several people do things that are baseless and have no edge over the consequences, even if they do not feel so. They, however, strongly feel that the success is right around the corner?
This behavioral pattern in the finance sector of every investors’ psychology and the effects on the investment decisions in the SE - Stock Exchange, the empirical study suggested that all the 428 investors had an in-depth knowledge concerning financial investments. They observed five psychological factors that affected their decisions; Optimism; Overconfidence; Group behavior; psychology of taking risks and pessimistic views generated maximum impact on their investment decisions. To elaborate, extreme optimism, psychology of taking risks and excessive pessimism affected them encouragingly regarding long-term investments, while group behavior and overconfidence created negative impacts. The behavioral finance theory explains the psychological tend4ency of an individual investor. However, it does not specify the negative aspects of psychological factors concerning their investment decisions.
They are literally falling prey to this kind of illusion. Several traders have an unrealistic optimism investing in security, banging their heads against desks, not so literally, with no success for years, because, they do things that fail to work. Every time while investing in security, they strongly feel that they carry an edge, and it will work. But, it fails at the day’s end. They try to change things, a small change brings in a new sense of control and hope. However, the bottom line fails to improve. Such things happen because those traders do not understand what really matters and what does not in security investment and trading. This is because they have absolutely no control of events after investing.
Can we do anything about it?
The problem is genuine and answers to it are deceptively clear. There is a need to evaluate results with clear statistics to understand what number actually indicates. With systematic performance metrics, during live trading or security investment are crucial, provided it is done correctly. By system development, methodical performance, a patient working, the opportunities can be tweaked. However, by creating an illusion to control, the consequences are likely to fail very easily to combat this illusion, while operating on the system that meets the live market. In such cases, statistics act like the main and powerful tool.
Therefore, the Illusion of Control in investment is another biased and cognitive quirk, but it is very important to understand. In case we try to overestimate our capacity to control the outcome, we can turn overly confident, by making more mistakes, and easily fall to ruin. In case we properly understand our abilities, skills and operate within the bounds of all probabilities, we can be a good performer by respecting the trading standards and market. For that, we need to avoid hubris to stay humble.
It is all about the normal probability status while gambling and trading. We are, in fact, all traders in the course of an everyday angry market. By accepting this sort of illusion directs our route to psychological control and balance, as we will understand that we do not have that powerful skill and ability as we presume we have, and also, we are not too bad feeling in the rough settings.
Such illusions define clearly who we are. We cannot fix it, but, we need to work to recognize it; figure out our weaknesses so as to master the art and ability of trading. Great control and wisdom come to traders who realize what precisely transpires inside them, understand and gauges the dangers of these biases and illusions.
This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.
© 2021 Shyam Gokarn