The Dual Self
“I can resist everything except temptation."
- Oscar Wilde
In a lab experiment, people were asked if they wanted a snack of fruit or chocolate for their next visit, and 74% picked fruit. At the next visit, they were asked if they wanted to stick with their choice or change. Those who choose chocolate was now at 70%.
Researching into an American gym’s clientele, it was found that those who had an annual membership used the gym on average 4 times a month, which worked out at $9 more expensive than paying as you go.
What are these two studies an example of?
The dual self.
We have two selves, our short term self and our long term self. The short term self is rooted in system 1, and is desire based. The long term self by comparison is system 2, and requires willpower.
These two selves often have conflicting goals. Your long term self might want to lose weight, but your short term self wants to eat that chocolate right now. Why is that? Chocolate is associated with more intense positive effect but less favourable cognitions. Fruit is associated with less favourable effect but more favourable cognitions.
Similarly, our long term self might want to get ripped, but our short term self decides to sit at home watching TV right now. Our long term self wants to learn coding, but our short term self scrolls through Facebook right now. Our long term self wants to get up at 7am tomorrow, but our short term self has 7 beers right now.
We can call these two selves the planner and the doer. When the doer and planner have conflicting goals, our ability to control the doer in favour of the planer is weak. What often happens is our longer term self makes plans, which are then sabotaged by our short term self, the doer.
So how does the dual self impact trading decisions? You set a goal of what you want to achieve, and your action plan to do it. You decide on a trading strategy. This is not a decision based in desire or emotion- you are rational and methodical in your choice.
Your short term self is then at risk of sabotaging that goal when it acts in it’s own interest. For example, opening too many trades because you’re bored and want excitement right now, or not stopping trading when in a losing streak because of loss aversion and not wanting to lose right now. Your doer self make quick decisions in the moment that are contrasting to what your planner self decided on. All those right now decisions add up, and suddenly you’ve blown up your account, or ended up being the type of trader you didn’t want to be.
Here’s the interesting thing though- combatting the above doesn’t mean you need to gain heroic willpower and self-control. In fact, it can sometimes be detrimental to exercise self control. Self control is a finite brain resource, and using it depletes other cognitive abilities. People who forced themselves to eat radishes instead of tempting chocolates subsequently quit faster on unsolvable puzzles than people who had not had to exert self-control over eating. People suppressing emotion led to a subsequent drop in performance of solvable anagrams. Essentially, we can exhibit self control, but it takes up cognitive resources to do so, leaving us susceptible to further biases and mistakes. This is a big problem in trading, when depleted brain power can cause traders to make very big and very costly mistakes, even going as far as blowing up their account .
So is there another way around the dual self? Yes, by spending less time in tempting situations.
Let’s look at another study. Researchers gave blackberries to more than 200 people and pinged them throughout the day, reminding them to record whether they were currently experiencing any desires — to eat, to drink, to smoke, etc — whether they were trying to resist the temptation, and whether they'd ultimately given in. They also measured participants' general levels of self-control.
As it turned out, the people with the highest levels of self-control were no better able to resist temptation than anyone else. They did experience fewer desires though. The findings of the study state "high self-control operates more by avoiding temptations in the first place than by resisting them."
One way to avoid temptations is to redesign the choice architecture. If you put a snacks beside the water cooler in an office, people are much more likely to grab a snack than if it’s situated far away.
In other words: Fighting the urge to snack (assuming you're not actually hungry) only becomes a thing when there are snacks in front of you. If you don't walk by the place where there are snacks, you'll probably be fine.
So again, how do we apply this to trading? Instead of trying to use willpower to not overtrade, or emotionally trade, take yourself out of the situation in which you have to make that decision.
Set your guardrails ahead of time before you have open trades, so that your journey to success is clearly laid out, and dynamically adjusts based on your success.
Rather than stare at price charts on existing positions, set stops and targets on your trades. Use an alerting system to warn if a trade has exceeded a limit, or if you are breaking your rules.
Our live discipline tool called PlayMaker does that. It limits your open trades, your losing streaks, and how long you spend in losers, so that your dual self does not have the opportunity to act opposing.