prospect theory

C

capitalMan

Is anyone familiar with prospect theory? daniel kahneman actually won last year 's nobel price for it..I think its implication for trading is very profound, It pretty much suggest that human beingare hard-wired to lose in the market.
(by making decisions that have negative expectation )
and being a innate feature of the human psyche, it's probably not possible to get rid of the problem.
 
ah..ic.. You must be about to win this year's nobel price in

economics for your revolutionary PHD thesis..

"prospect theory is nonsense"..
 
If that is a good summary of the theory I sure hope he wrote it before Schwager wrote market wizards. Because that theory was expressed by (Richard Dennis' partner in the turtle stuff) pretty cogently.
 
Quote from vegasoul:

Is anyone familiar with prospect theory? daniel kahneman actually won last year 's nobel price for it..I think its implication for trading is very profound, It pretty much suggest that human beingare hard-wired to lose in the market.
(by making decisions that have negative expectation )
and being a innate feature of the human psyche, it's probably not possible to get rid of the problem.
More...
DUDE, I AGREE. however, i would add that a system could help you fight your harmful tendencies. ALSO, i do believe that after a while you can LEARN how to stop making the wrong choices most people make naturally.

look at these 2 posts i made recently in the "trading inversely" thread:
Quote from Gordon Gekko:


i've said this a while ago, but...

i think most new traders trade worse than random.

you might think they'd just go broke because of commissions and spreads, but think of how easy it is for people to lose their money. i don't know many people that sat down and studied the markets for years to find a great negative edge. it just happens. i believe a negative edge almost goes hand in hand with average human emotions.

i do think you could make money trading inversely, however, your mind will know the buttons are reversed, so you'll probably still trade bad. plus, that's no way to trade, anyway. but i do think there might be something to it.
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Quote from Gordon Gekko:


i agree. i actually did try reversing my buttons a while ago. but as i watched my trade, i couldn't forget the buttons were switched, so i still sucked.

i think it would be interesting to do a scientific study.

take a bunch of very new traders. don't tell any of them that some will have their trades be opposite. also have a group with normal buys/sells. then see if the group with the opposite buttons did any better.

i would bet the ones with opposite buy/sells would do better because i believe average human emotions might be a negative trading edge.
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Quote from vhehn:

nonsense
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I would be interested to read more of this theory. At first glance I would venture to argue:

While theories of human nature can be applied on a wide scale with verity, they often fail on an individual level. There is great diversity in the genetic pool and in the experience of individuals, and yet certain tendencies are common. The application of general human behavioural theory can be of use. However, exceptions always arise. No theory, not even the most basic physical principles, has been created without an exception. Human behaviour seems to be more complex, and as a result the theory which describes this behaviour is likely to have a greater degree of exception than theory concerning physical law.

If what has been presented here is a valid summary of prospect theory, then I would not go as far as to describe the idea "nonsense," nor would I say the theory is likely universal. Rather, I would guess that the theory probably is an apt description of general human behaviour but not without exception. In other words, while many individuals are likely "destined," to fail in trading the markets there will be others - probably a select few - who will succeed.

I would be very interested in ideas concerning a method by which to determine who will and who will not succeed. Who is "destined?," who is likely to fail/succeed? What are the measures for determining these things?
 
Quote from Magister Ludi:

gekko,

You just want to find an excuse for your horrifc trading and slap a psuedo science sticker on it..."
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Commisso,

NATURALLY the decisions newbie traders make lead them to losing money. as a trader, your goal is to separate yourself from your natural trading emotions. a systematic approach, edges, and practice are things a trader can do to profit from the fact that most people make bad trading decisions.

BOTTOM LINE: ON ALL TIMEFRAMES THERE ARE PEOPLE THROWING THEIR MONEY INTO THE MARKET AND ACTING ON THEIR EMOTIONS. BECAUSE MOST PEOPLE NATURALLY REACT THE SAME WAY, PROS CAN DEVELOP WAYS OF TRADING WHICH CAPITALIZE ON ALL THESE PEOPLE MAKING THE SAME MISTAKES. ON ALL TIMEFRAMES, THE MARKET GOES TOO FAR UP AND TOO FAR DOWN.

p. s. this post was originally posted with a lot of swears, in case they get edited out.

P.S. This post has been edited. - RLB
 
You know what Gekko my post waas mean spirited and I apologize. You are indeed a whiney bitch, but this is an open forum and you don't need me to throw jabs...

My bad -- I was wrong and I will put you on ignore and never do it again...

I hope you find your way...

PEACE and good-trading,
Commisso
 
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