I studied Psychology in the Uni. During those days I was intensely curious about decision making, human behaviour and how we can shape both of them. We ran experiments on real fishes and electronic rats but the ones that tickled me most were the ones we could pull on the people around us.
And here is an experiment I never got down to doing. You see, most lecturers would plant themselves in front of the lectern and deliver the entire class from that one spot. We had a particularly animated lecturer who was great at working the crowd. He would prance left and right, forward and back, using the entire front area of the lecture hall to his advantage. He made sure that everyone got involved.
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Imagine a scenario whereby the entire class starts smiling and nodding their heads whenever he speaks from the left side of the room. It would seem to him that whatever concept he is trying to explain suddenly becomes crystal clear to the entire lecture. As he works his way to the other side of the room, the smiles disappeared only to be replaced by frowns and distracted whispers amongst the students.
Now build in an entire gradient of smiles and frowns as he moves from left to right. Affirmation on the left, disengagement as he moves to the right. At the end of the session our friend, the animated lecturer, would be parked right next to the light switches in front of the rubbish bin all the way in the left corner thinking he has done such an excellent job in moulding the younger generation.
When in actual fact what everyone is so happy about is their ability to position someone physically simply via smiles and nods – the simplest form of feedback possible.
Despite my best desire, i never got down to rallying the entire class to make this work.
At that time it seemed like a cool thing to do. I did not give much further thought to it. It was only recently when I came across again the role of feedback.
The Role of Feedback
As human beings, we do not operate our daily lives in a vacuum. We need feedback, we thrive on feedback. In fact, much of our entire existence is predicated on the feedback we receive.
At work, our bosses comments matter much to us. A pat on the back makes our day while a reprimand for sloppy work causes some of us to question our self worth and slip into mild depression.
With friends, a positive comment on our haircut or weight loss means so much and brings about so much positive energy. We must be doing something right, and people around us can see it.
Feedback can be explicit or subtle. When my mom cooks and we eat in, I tell her that her curry chicken is awesome. That is explicit and unmistakable feedback. Or I say nothing but keep going for another helping, and another and another, until there is nothing else left in the pot. That is awesome feedback for the cook as well, just expressed in a totally different form. (I know you are reading this Mom – big wave!)
We need feedback to learn and to gain experience. Imagine a tenpin bowler. Every strike is a form of positive feedback. You must be doing something right to bring down all the pins at one go. You try to remember what you have just done. Your muscles remember. And you try to replicate it again and again.
What happens when feedback is mixed? What happens without feedback?
Imagine me telling my mom her curry chicken rocks. But I refuse to touch any of it and call for Mac delivery instead. Or the other way round – I tell her that her cooking sucks but lap up every morsel of dinner. Feedback then becomes confusing for the receiver. Is the chicken good or not? Mixed feedback messes with people’s minds. It makes people wonder if they are doing right or wrong.
Picture yourself in a situation whereby you bowl and then close your eyes the moment you release the ball, refusing to look at the outcome of your efforts. You have no idea how many pins you hit, or if the bowling ball goes into the gutter altogether. You then do it again and again, only to see your scores at the end of the game.
Two possible extreme outcomes could happen. You might do very well, striking out every single frame and notching a perfect game of 300. Bravo! Equally possible is that you totally bomb and hit none of the pins at all in the entire game. In reality, it is probably somewhere in between. You would have muddled through and completed the game. Was it fun? Perhaps. Have you become a better bowler through deliberate practice? Did you improve from one frame to the next? Definitely not.
The Investor Feedback Conundrum
The role of feedback in shaping investor behaviour is undeniable.
My curry chicken cooking Mom has made money from property before and she swears by it. She has never had good fortune with stocks and hence she shuns it like plague. That is the feedback loop at work. It keeps her doing what she does best and allows her to stay out of trouble.
Yet feedback is also a bane for investors. The markets are random, they throw out meaningless feedback all the time. Whether the stock we bought today goes up tomorrow or not is inconsequential for us as long term investors. Yet if our stock raises, we think we are highly skilled. When our stock tanks we take it to be negative feedback, like our bosses admonishing us, and sell out in frustration.
The world’s greatest investor Warren Buffett makes no bones about his feelings for the market – Ignore the gyrations, ignore the analysts, ignore the chatter, ignore financial predictions. Ignore ignore ignore.
Feedback is extremely useful in everyday life. We can use it to shape human behaviour, up to the point where we want others to physically stand. We are all susceptible to feedback, and feedback is crucial to learning. What is important is knowing when to accept and when to ignore the feedback.
Only then will we not be painted into a corner by the smiles and frowns we receive from the market.