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Tim Harford OBE: The undercover economist

I’ve read the Financial Times newspaper for longer than I care to admit. Over the years our relationship has had its ups and downs, me favouring some writers over others, complaining about coverage of certain topics, and shocked by the price of the printed article. However, the Weekend FT is one I’ve been happy to pay for throughout; the concept of the ‘How to Spend It’ magazine’s just so ironic.
One of its current authors, Tim Harford, is an especially engaging economist; some might think this an oxymoron, but bear with me. A fortnight ago he wrote a piece entitled ‘Our first instinct is far too often wrong’. Hopefully this link will work for you:
Click here.

The reason I picked it is that it’s about exam technique, something parents may be interested in now and STA Diploma exam candidates might find interesting nearer the date. He discusses the tendency, in multiple choice tests, to have second thoughts – and whether one should stick to the initial answer. Folk wisdom says stick; research shows that those who changed their answers ‘are far more likely to go from wrong to right, and that students who change their answers tend to improve their scores’. This is known as first-instinct fallacy.

Psychology professor Justin Kruger at New York University has been studying this phenomenon in a mock format of the ‘Who wants to be a Millionaire’ TV show. He’s found that the sticking to first answer bias is largely due to the way we remember our hits and misses, forgetting failures and exaggerating successes.
It also reminds me of the way technical analysts can get so bogged down with an original strategy that they don’t see the warning sings when it’s time to switch tack. You have been warned!

Posted in Finance, Markets, STA news, Technical Analysis, Technical Analysis Courses, Trading, Trending
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The views and opinions expressed on the STA’s blog do not necessarily represent those of the Society of Technical Analysts (the “STA”), or of any officer, director or member of the STA. The STA makes no representations as to the accuracy, completeness, or reliability of any information on the blog or found by following any link on blog, and none of the STA, STA Administrative Services or any current or past executive board members are liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising from its display or use. None of the information on the STA’s blog constitutes investment advice.

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