The Loss Trap – Part 3

By Dr. Van Tharp

People tend to deceive themselves the most. Self-deception occurs each time a person clings to a false belief, and everyone holds many false beliefs. Self-deception greatly increases the risk of failure since we really do not know what we are confronting. When we fail because of self-deception, we continually face the same problem over and over again because it has not been resolved.

Again, look at the example of Brad, the stock market investor. When he first fell behind by $700, he could not admit he was wrong and take the loss. When his stock continued to fall, he could not admit the possibility that it would fall any farther. In fact, the more the price fell, the more difficult it was to admit that it would go down any more.

Once people commit to something, they become extremely confident about their decisions. For example, psychological researchers taught a group of people to read stock charts and then asked them to predict from another set of charts whether prices would be higher or lower a month later. These trained forecasters were correct on 47% of their stock predictions–around chance levels–but their confidence in the accuracy of their predictions was much higher than chance–at around 65%.

In fact, they were no more correct when their confidence was high than when their confidence was low. How about extreme confidence–those times when people are really sure they are correct? Research has shown that when people give odds of 100-to-1 that they are correct, they actually are right only 75%-80% of the time.

So, although they rate their confidence at 100-to-1, the actual odds should have been about 3.5-to-1.Once people commit themselves to a position, even if it goes strongly against them, they become fully ensnared in the Loss Trap. They are so confident they are right, that they are willing to bet more and more money in their misplaced confidence.

Thus, Brad was able to lose $700, $1,200, $2,500 and eventually $4,500 to prove that he could not be wrong.

Dr. Van Tharp


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