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Stupidity in Trading 

Trading is a completely psychological game, which is why many experienced, knowledgeable, and skilled traders continue to suffer massive losses in the markets, and some of them remain poor despite years of experience. Because of their undisciplined psychology, if given another chance, they will repeat the same mistakes.

Pure stupidity

When presented with a complex situation, the stupid person sees only meaningless chaos. Introduce a stupid person to a game, and they will fail to understand the rules, even if they are clearly and repeatedly explained, because they cannot learn, or can only learn slowly. It took AI scientists a long time to realise that intelligence is inextricably linked to learning; they spent years trying to design an intelligent machine before realising it’s better to build a dumb machine that learns quickly. 

A stupid person is inexperienced at everything all of the time.

2. Ignorant stupidity

Ignorance is not always a sign of stupidity; any intellectual exploration, including science, is contingent on being aware of what one does not know. 

Background knowledge in any domain is like water for fish: we aren’t even aware of it, but it is what allows us to absorb new information. The less you know, the more difficult it is to learn; the less you can learn, the less you know – and the dumber you become. This is known as the ignorance loop, and people with perfectly good hardware can become trapped in it.

3. Fish-out-of-water stupidity

A lack of brainpower fails to account for what is referred to as fish-out-of-water stupidity. People with powerful brains who have accumulated a great deal of knowledge in one domain and are thus regarded as exceptionally smart, tend to believe they will have exceptionally smart thoughts in every field of knowledge they venture into. They take their own accumulated knowledge for granted and believe that the advantage it provides them in their field is simply a result of their overall brilliance. 

Often, experts are unaware that they have entered a foreign domain: the bankers who made mistakes during the 2008 crash thought they were in the domain of risk when, in fact, they were in the domain of uncertainty.

4. Rule-based stupidity

Stupidity can be pervasive. 

Stupidity is frequently caused by a surplus of mental materials rather than a scarcity of them. It is the result of everything we carry around in our heads and absorb from others: powerful algorithms, flawed theories, fabricated facts, seductive stories, leaking metaphors, and misguided intuitions. The stuff that appears to be solid knowledge but isn’t.

5. Overthinking-stupidity

Smart people, or people who believe they are smart, dislike strategies that include the inevitability of error. When faced with what appears to be randomness, they will not throw up their hands and go with the flow. They want to impose themselves on the rest of the world. That level of intellectual ambition can lead to insight and innovation, but it can also lead to stupidity when errors are vigorously and expertly defended. 

Once a clever person has adopted a mistaken belief, it is very difficult to convince them otherwise: ‘cognitively sophisticated’ people are more susceptible to flawed thinking than the average person, because they are so skilled at bending reality to fit the model of it they have constructed.

People who can speak brilliantly on the spur of the moment are also likely to be very good at finding instant and persuasive justifications for whatever it suits them to believe at any given time. The right words just appear, perfectly turned and gleaming like truth. 

Clever people prefer to add features to a product, movie, or argument rather than subtract them, which can lead to stupid results.

6. Emergent stupidity

Even in retrospect, it’s difficult to pin stupid decisions on any one person in organisations that do stupid things, and there may be no stupid individuals involved. 

Stupidity can emerge in the same way that intelligence does in a flock of geese, an ant colony, or human brain cells and synapses. When a group of individuals cooperate and follow a few simple rules, collective behaviour that is much smarter – or much stupider – than the sum of its parts may emerge. Leaders in any organisation should consider the simple rules that people follow even when they are not thinking, and whether they are more likely to generate intelligence or stupidity.

7. Stupidity motivated by ego

The truth is that stupidity is frequently a deliberate act: people make themselves stupid when it suits them. The fact that humans can do this at all is quite impressive. 

People do not simply lose knowledge; they unconsciously resist or reject it. They are looking for minus knowledge. Failure to learn from experience stems from a fear of thinking about what we don’t know, which leads to a reliance on reassuring heuristics and habits.

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