Introduction

We consider ourselves rational and objective decision-makers, but as a trader you know that this utopia is not realistic. We all make mistakes in our decision-making and encounter challenges in the markets, which can have negative consequences.

However, you can attempt to mitigate some of these mistakes. That's why it's essential to understand the role of cognitive biases, which are patterns of deviations from a theoretically optimal decision.

To help me explore this topic today, I've invited Simon Russell to the hub to share his views. Simon is the founder and Director of Behavioural Finance Australia.

Working mainly with fund managers, major super funds and financial advisors, he focuses on the specifics of financial decision-making. Simon has degrees in finance and psychology, plus several post-graduate qualifications.

He helps asset managers apply behavioural finance and related decision-making concepts to improve decisions, actions and outcomes. Simon is also the author of four books on behavioural finance.

Simon, it's great to have you here…

Questionnaire

• So why do you think it's important that we aim to reduce our cognitive load?
• Can a high cognitive load affect the speed of making those decisions?
• Is there a difference between cognitive load and cognitive endurance?
• Can traders document processes using checklists to help?
• What are some of the other methods that traders can use to establish that objectivity and to maintain it?
• What are some of the things that can support good habit formation for traders?
• What are the sorts of questions that traders should be asking themselves?
• There's a method that I've used where if you've got a decision to make, you think what is the best case? What is the worst case? And what is the most likely case? What are your thoughts about that method?

Reading time: 30 minutes

Trading level: Intermedaite

COGNITIVE LOAD • NEUROSCIENCE • TRADING BEHAVIOUS