Intermittent Reinforcement
Definition:
Intermittent Reinforcement - Intermittent Reinforcement is when rules, rewards or personal boundaries are handed out or enforced inconsistently and occasionally. This usually encourages another person to keep pushing until they get what they want from you without changing their own behavior.
Description:
Intermittent reinforcement affects the way we think about rewards. Think about slot machines. Slot machines are programmed to keep a small percentage (usually 5-25%) of the money and pay out the rest in "random" winnings and jackpots. If the payout was predictable, for example, if on every play the gambler entered one dollar and got back exactly 90 cents, the odds would be the same but the gambler would quickly get bored and annoyed. What keeps them feeding the machine is the frequent small payouts (2-10 times the bet), the occasional medium sized payouts (50-100 times the bet) and the dream of the rare payout (over 1000 times the bet). Most people will feed small and medium-sized winnings straight back into the machine and keep playing until they get bored or go broke. That's how intermittent reinforcement works. Slot machines account for approximately 70% of casino earnings.
Intermittent reinforcement also influences how most people think about risks. For example, consider people who build houses on beachfront properties, which lie in the strike zone of hurricanes. If a hurricane hit every year, nobody would live there. But hurricanes tend to be rare and unpredictable. The more time that passes between disasters, the more properties get built in the strike zone. People are attracted by the appealing locations and the low property prices and are willing to rationalize away their concerns. They may see others living happily on a beach paradise and fear missing out on a great opportunity. They may tell themselves: "It's been decades since anything ever happened here." That's how intermittent reinforcement works.
http://www.gate.cnrs.fr/IMG/pdf/11-Intermittent_Reinforcement.pdf
The purpose of this paper is to draw attention to a possible behavioral explanation
for why economic actors persist in activities that continue to lead to no gains or even losses.
In addition to stock trading, these can include, for example, persisting in unprofitable
investments in R & D or marketing efforts, banks extending additional credit to customers
with financial difficulties, or even some forms of gambling behavior.
ps: also why internet message board posters will have visceral reactions to trading dissenters even when they themselves are losing.
Definition:
Intermittent Reinforcement - Intermittent Reinforcement is when rules, rewards or personal boundaries are handed out or enforced inconsistently and occasionally. This usually encourages another person to keep pushing until they get what they want from you without changing their own behavior.
Description:
Intermittent reinforcement affects the way we think about rewards. Think about slot machines. Slot machines are programmed to keep a small percentage (usually 5-25%) of the money and pay out the rest in "random" winnings and jackpots. If the payout was predictable, for example, if on every play the gambler entered one dollar and got back exactly 90 cents, the odds would be the same but the gambler would quickly get bored and annoyed. What keeps them feeding the machine is the frequent small payouts (2-10 times the bet), the occasional medium sized payouts (50-100 times the bet) and the dream of the rare payout (over 1000 times the bet). Most people will feed small and medium-sized winnings straight back into the machine and keep playing until they get bored or go broke. That's how intermittent reinforcement works. Slot machines account for approximately 70% of casino earnings.
Intermittent reinforcement also influences how most people think about risks. For example, consider people who build houses on beachfront properties, which lie in the strike zone of hurricanes. If a hurricane hit every year, nobody would live there. But hurricanes tend to be rare and unpredictable. The more time that passes between disasters, the more properties get built in the strike zone. People are attracted by the appealing locations and the low property prices and are willing to rationalize away their concerns. They may see others living happily on a beach paradise and fear missing out on a great opportunity. They may tell themselves: "It's been decades since anything ever happened here." That's how intermittent reinforcement works.
http://www.gate.cnrs.fr/IMG/pdf/11-Intermittent_Reinforcement.pdf
The purpose of this paper is to draw attention to a possible behavioral explanation
for why economic actors persist in activities that continue to lead to no gains or even losses.
In addition to stock trading, these can include, for example, persisting in unprofitable
investments in R & D or marketing efforts, banks extending additional credit to customers
with financial difficulties, or even some forms of gambling behavior.
ps: also why internet message board posters will have visceral reactions to trading dissenters even when they themselves are losing.