Politics is disgusting and the economy is worse (NOTE: subscribers can still listen to this show)–and the stock market is like a horror movie! The scared investor’s early decision to sell stocks happens through “social projection”–people’s tendency to heavily rely on their own current feelings and inclinations when they estimate others’ state of mind and preferences. As a result of social projection, an investor who is scared assumes that OTHER investors are ALSO scared and that their fear will consequently drive the stock price down, prompting the one investor to sell early before the price sinks.
Researcher Eduardo Andrade says, "If I’m scared, I tend to project that you are scared. If I feel like selling, I project that you are also going to sell, and that pushes me to sell earlier rather than later in anticipation of a drop in stock value." In other words, it’s a sure way to lose money in the market.
Andrade and his co-researcher Chan Jean Lee tested their hypothesis by showing clips from 25 horror movies, such as such as "The Sixth Sense" and "The Ring," to one group of participants, while the other group watched dry documentaries about Benjamin Franklin and Vincent Van Gogh. After the screenings, researchers told the participants that it was time to move onto another experiment, a stock market simulation, where they went through 25 rounds in which they had an opportunity to sell a $10 stock. The selling patterns indicated that the scared players (those who had watched the horror movies) were more likely to sell early than those who watched the documentaries.
Andrade says, "Generally speaking, those who made more money were those who decided to stay longer in the simulation game."
Does real life work this way too? In the REAL world, it’s neglect that scares us. Have Whitley and Anne fended off so many attacks over the years, only to die from neglect today? Only YOU can change that: Subscribe today!
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