# gut instinct / intuition

interesting snippet from innerworth today:

...A study by psychologists Drs. Denes-Raj and Epstein (1994) illustrates how people can throw logic out the window and make a poor decision when they believe their gut instinct is right.

Participants were asked to pick out a red jellybean from one of two jars of mostly white jellybeans. It was a simple game: If you pick out the red jellybean, you win. The first jar had 10 beans while the second jar had 100. The 10-bean jar had one red jellybean while the 100-bean jar had seven red jellybeans. From which jar would you choose to draw a red jellybean? If you're like most people, your first thought is to try your luck with the 100-bean jar. After all, there are seven red jellybeans in that jar and only one red jellybean in the other. It intuitively feels right, but calculate the actual probabilities. The odds of winning are 10% for the 10-bean jar while the odds of winning are 7% for the 100-bean jar. The interesting part of this study is that participants knew that their odds of winning were better had they tried their luck with the 10-bean jar, but their intuition told them otherwise. In the end, they allowed their intuitive hunch to overpower their logic, and draw a bean from the 100-bean jar.

There's a lesson to learn from this study: Intuition is powerful, and it's vital to learn to overcome your intuition when you suspect that it may lead you astray. If you were a participant in the study, would you choose to try the 100-bean jar? Your intuition would drive you to go there, but you could train yourself to curb this tendency. You could tell yourself over and over, "Pick from the 10-bean jar," and you would probably do it even if you had a nagging urge to pick from the 100-bean jar. You might try the same strategy while trading...