A Rat Experiment Shows Why Hope Is Important | A Trading Psychology Lesson

By Yvan


An interesting experiment was conducted in the 1950s by a scientist named Curt Richter. In that experiment, the man took a dozen domesticated rats and placed them into jars half-filled with water.

Unsurprisingly, the rats drowned, but the idea was to measure the amount of time they swam before they went belly up.

“The first rat”, Richter noted, “swam around and died two minutes later.”  And two more of the 12 domesticated rats died in pretty much the same way. But, interestingly, the nine remaining rats did not succumb nearly so readily; they swam for days before they eventually gave up and died.

A second time, Richter conducted the experiment with wild rats, renowned for their swimming abilities. What’s worth noting is that the ones he used had been recently trapped and were fierce and aggressive. One by one, he dropped them into the water, and one by one, they surprised him: Within minutes of entering the water, all drowned.

“What kills these rats?” he wondered. “Why do all of the fierce, aggressive, wild rats die promptly upon immersion and only a small number of the similarly treated tame domesticated rats?”

The answer, in one word: Hope.

Hope Fosters Resilience

You see, the wild rats clearly understood that there was no way they would get out of the jar. They understood that they were in a situation against which they have no defense. So, they gave up.

Richter, later, tweaked the experiment a little bit. He took other wild rats and placed them in the jar. But, right before they were expected to die, he picked them up, held them a little while, and then placed them back in the jar. “In this way,” he wrote, “the rats quickly learn that the situation is not actually hopeless.”

As it appears, this small pause made a huge difference. The rats that experienced a brief reprieve swam much longer and outlasted the rats that were left alone. Essentially, when the rats learned that they were not doomed and that the situation was not lost, they had a reason to keep swimming—and they kept. They did not give up so easily.

“After elimination of hopelessness,” Richter wrote in his paper, “the rats do not die.”

Obviously, humans are quite different from rats, but one similarity stands out: we all need a reason to keep swimming. So, hope obviously serves an important function: it’s a primal survival mechanism that helps us stay alive.

Hoping Is Not Like Wishing Or Dreaming

Hope often gets a bad rap. People—especially in the trading and investing space—hear the word ‘hope’ and dismiss it as doe-eyed, wishy-washy, emotional fluff. And that is missing the point.

You see, hoping is not the same as wishing or dreaming. Hope is regulated by an assessment of the possibilities and, unlike a dream or a fantasy, those possibilities have to exist even if their odds are slim.

For instance, you can wish you hadn’t gotten into a car accident the other day, but you can’t hope it. For you to hope for something, there needs to be a possibility. Hope is on one end of the spectrum of how you react to future possibilities. The other end is hopelessness (or despair).

So clearly, as a human being who lives and experiences possibilities, you need hope. Not only do you need it, but it’s also an inevitable part of your experience. That said, as a trader, there’s an important discussion to be had about how much of it you need.

As a primal survival state, hope is important. We’ve seen that. But in a field like trading where rational and informed decisions need to prime, hope needs to be moderated.

The reason is very simple: the moment you entertain the hope of obtaining something from a process that’s quasi-random in the short term, you start operating from a loss aversion state of mind, which leads to rigidity and inflexibility.

So, in order not to mess with your trading system’s expected value (EV) ideally, you need to be situated at the center of the hope-despair spectrum when trading.

This doesn’t mean a complete elimination of hope. Rather it means that you are hopeful about what your overall performance will look like in the far future, but in the short term, your feelings of hope are tempered by a full understanding of probabilities.

This means that you know that, in the short term, anything can happen. You don’t just know it in a kind of loosey-goosey way… no, you understand it fully! This way, you’re not left hoping for things that can’t possibly happen.

This is one of the greatest paradoxes in life: if you want to be good at anything; if you want some future results that look a certain way, you’ve got to temper down your expecting mindset and focus on putting in the right kind of work.

Balanced, Composed, Rational… 

Say you and I put on a trade, betting on the upside. But, as we watch that trade unfold, the market is indicating that it wants to move to the downside.

Now you might say, “It’s gonna keep going down from here and hit our stop-loss.” And I might say, “I know it’s going down, but I really hope it goes up.”

Both of us focusing are on the possibility for that trade. It’s just that I’m adopting a hopeful approach and you are doing the opposite.

Let’s say another friend comes in, and she goes “I obviously want the market to go up and the trade to be profitable, but I’m ready to accept anything that comes. Because trading is not one trade. Trading a lot of trades.”

Same inherent desire, same estimation of the probabilities, but a glaring difference in attitude that I take to be the essential difference between winning traders and losing traders.

Hanging out on any end of the hope-despair spectrum isn’t an optimal use of our mental energy. Instead, if you can learn to experience hope from a place of balance and not through the lens of attachment–of needing something to be a certain way in the short term–you’ll be far ahead of the crowd.

A Few Words On Mindfulness

Mindfulness (and insight into change) teaches us to embrace our experiences without clinging to them, to get the most out of them in the present moment by fully appreciating their intensity, all of that in full knowledge that we will soon have to let them go to embrace whatever comes next.

In that sense, mindfulness teaches us to experience hope from a place of balance. Since change is built into the very nature of things, nothing is inherently fixed, not even our own feelings about something. No matter how bad the situation is, anything is possible.

When you make mindfulness your ally on your trading journey, the tendency to cling slowly dissipates; your mind becomes open to everything, ready for anything.

A word of caution: Don’t even try to let go of clinging. When you become attached to the idea of becoming unattached, you are still trapped in attachment. Attachment/clinging drops away naturally and unexpectedly of its own accord when you relax into uncertainty without an agenda.

Comments are welcome on Twitter. I hope you have a profitable trading week.

 

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Memorable Lines From This Post

We all need a reason to keep swimming. So, hope obviously serves an important function: it’s a primal survival mechanism that helps us stay alive.

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Hoping is not the same as wishing or dreaming. Hope is regulated by an assessment of the possibilities and, unlike a dream or a fantasy, those possibilities have to exist even if their odds are slim.

Click to Tweet

This is one of the greatest paradoxes in life: if you want to be good at anything; if you want some future results that look a certain way, you’ve got to temper down your expecting mindset and focus on putting in the right kind of work.

Click to Tweet

If you can learn to experience hope from a place of balance and not through the lens of attachment–of needing something to be a certain way in the short term–you’ll be far ahead of the crowd.

Click to Tweet

Change is built into the very nature of things, nothing is inherently fixed, not even our own feelings about something.

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