Blog PT

The fable of the boiling trader

Psicotrading
I love going to Portugal. And I love coming over to spend a day with Steer, The Indie School of Trading. Last year, as I prepared to fly over for a session where we introduce students to cognitive biases in trading, I went online to book my flights. Little did I know I was about to be exposed to a very simple yet effective manipulation of my own biases.

There was only one scheduled flight that made sense logistically, so I was disappointed that it was more expensive than normal. From memory, it was about £200 for the return flight. As it was my last option, I decided to book it anyway. So I got my debit card and started going through the checkout procedure on the airline site. Making sure along the way that I’d turned off all the default ticks that are intended to nudge us towards spending more on lots of little things like luggage, insurance, cards, hotels…etc. Those checkout services are deviously designed to confuse us and make us trip over ourselves.

As I got to the payment page though, an alert came up on the page saying something along the lines of: ‘The fare on this flight has now gone up, please return to the start and select your flight’. I went back to the beginning as instructed, only to see the flight had gone up by £50 to £250. I was in a bit of a rush to a meeting, so I decided I’d do that later.

When I came back to the website, I refreshed the page and saw the flights were still £250. So I went to book my flight. After navigating the maze of nudges I went to pay and once again: ‘The fare on this flight has now gone up, please return to the start and select your flight’. £250 to £300.

When I came back to the website, I refreshed the page and saw the flights were still £250. So I went to book my flight. After navigating the maze of nudges I went to pay and once again: ‘The fare on this flight has now gone up, please return to the start and select your flight’. £250 to £300.

This happened one more time, from £300 to £350. I finally managed to book the flight for £350! Later that day, I paused and thought for a second… Wait a minute… I wasn’t ok paying that amount of money for that flight…! It was only later I realized what had happened. It reminded me of the fable of the boiling frog. The story goes that were you to drop a frog into boiling water, the frog would jump out immediately. The difference in temperature would be too sudden. However, if you were to drop a frog into room temperature water and gradually increase the temperature, the frog would boil alive. The frog doesn’t detect the gradual increase in temperature and therefore doesn’t react accordingly.

I was the boiling frog. The price of the flight had gradually increased from £200, to £250, to £300, and finally to £350. I had felt frustrated between each step, so I had detected ’the rise in temperature’ slightly, but £50 isn’t that much. But 3x £50 is £150. That's a lot. I realized with hindsight, that during the booking process, I had felt slightly anxious and scared to lose my flights. I wouldn’t be surprised if my heartbeat had actually increased.

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The only benefit of the experience was that by the time I was running our ‘Mindful Money’ on cognitive biases with the Steer students, I had the perfect anecdote to show them what happens when you aren’t mindful of what’s happening in your body and when you’re not aware of the trap that’s been laid in front of you. My little story is pretty harmless. But for a trader, this exact bias is one of the many that can trap you into making unwise decisions, potentially with far larger sums of money. For somebody learning to trade, the cost of not being aware of your biases or not being mindful of your body and mind could be huge. The graph on your screen may for instance increase incrementally, and your psychological baseline as to what is acceptable may gradually increase with it. There are 100s of biases that we get caught by and many of them involve numbers. The design of the user interface itself may unintentionally lead to trapping you into a bunch of these biases.

What makes, our Indie School of Trading special, is that we work with the mind, not just the graphs. A good trading technician without self-knowledge can be a danger to themselves. One that understands their own mind can be free from the traps of the market, and perhaps more importantly, free from the traps of their own mind. At Steer, we’re doing our best to help people with both.

This article was written by Steer mentor Jon Barnes. Jon is an organizational change consultant, helping teams and companies to self-organize. He’s an international speaker, the author of two books: Democracy Squared and Tech Monopolies.