The GI Joe Fallacy: Knowing is half the battle?

Have you wonder why we day traders do the same mistakes over and over again? I have.

“Honor your stop loss”: let’s give it some room… just a little bit more….
“Don’t add to your losing position”: It looks weak, let’s add a little bit more, maybe it will turn into a winner…
“Don’t chase the trade”: Better to enter now, it looks like it wants to go down more…

We all know these basic rules of day trading, right? So, why we make decisions against this rules, if we already know? Why we make these mistakes over and over again?

Last week I enrolled in an online Yale University course “The Science of Well-Being” and one of the lessons is about the “GI Joe Fallacy”, named after the G.I. Joe show from the 80s, so at the end of the show, they had this public service announcement: “Look both ways when you cross the street”, “don’t talk to strangers” and these kinds of things. And at the end of it, the kid in the announcement would say, “Thank you G. I. Joe. Now, I know.” And then, G.I. Joe would say, that “Knowing is half the battle”.

Well, it turns out that the common idea that “knowing is half the battle”, merely “knowing” something, is not enough to actually change our behavior, we actually have to do all kinds of stuff other than just knowing something to change our behavior. Recent work in cognitive science has demonstrated that knowing is a shockingly tiny portion of the battle for most real world decisions. The lesson of much contemporary research in judgment and decision-making is that knowledge -at least in the form of our consciously accessible representation of a situation- is rarely the central factor controlling our behavior. The real power of online behavioral control comes not from knowledge, but from things like habit formation and emotion regulation.

If we really want to change our behavior, we have to change habits. We can’t just learn the stuff. Changing habits and behaviours is a deeper subject that won’t be covered in this blog entry, but we as a day traders community have built some tools to help us in this endeavor, some of them: keeping ourselves accountable to a trading buddy, keep a day trading journal, posting our trading journal in the forums, review our trading rules before the market open, discuss our trading errors in a public youtube video, etc.

Knowing is not half the battle for most day trading rules and cognitive biases, including the G. I. Joe Fallacy. Simply recognizing that the G. I. Joe Fallacy exists is not sufficient for avoiding its grasp.

So now you know. And that’s less than half the battle.