The allures and dangers of blind obedience

There are two major way of learning. The school of hard knocks and other people’s mistakes. The first path is bumpier and without proper direction often leads to nowhere. The second path, they say, is smoother and smarter way to learn. This is the reason why many of us, desiring to become more successful traders, diligently read books, newspapers, and blogs written by more experienced and more knowledgeable people.

Human nature is built in such a way that we often prefer to take the path of less resistance and to follow advices by people who are considered experts. Conforming to the dictates of authority figures has always had genuine practical advantages for us. Early on in our life, the so called experts (parents, teachers) knew more that we did, and we found that taking their advice proved beneficial – partly because of their greater wisdom and partly because they controlled our rewards and punishments. As adults, the same benefits persist for the same reasons, though the authority figures are now employers, judges, and the government leaders. Because their positions speak of greater access to information and power, it makes sense to comply with the wishes of properly constituted authorities. It makes so much sense, in fact, that we often do so when it makes no sense at all. The same principle applies to trading. Often it makes sense to listen to trader experts, when and if they decide to share their knowledge. It is easier to say to yourself that these people know more than I do and all I should do is to be their shadow and mimic every move. It is easier, but not reasonable. Blind following usually means not using and not improving you own judgment. And such an approach leads to deadly dependence, mechanical action and crowd behavior- qualities that won’t do any good for our trading performance.

In his book “Influence”, Robert Cialdini talks about the dangers of blind following: “ Health is enormously important to us. Thus, physicians, who possess great knowledge and influence in this vital area, hold the position of respected authorities. In addition, the medical establishment has a clearly terraced power and prestige structure. The various kinds of health workers well understand the level of their jobs in this structure, and they well understand that, too, that M.D.’s sit at the top. No one may overrule a doctor’s judgment in a case, except, perhaps, another doctor of higher rank. Consequently, a long-established tradition of automatic obedience to doctors’ orders has developed among health care staff.” The same effect is noticed in traders who strictly follow other traders’ decisions for a prolonged period of time.

“The worrisome possibility arises when a physician makes a clear error. No one lower in the hierarchy will think to question it – precisely because, once a legitimate authority has given an order, subordinates stop thinking and react mechanically to the situation”. Traders, who blindly follow experts, don’t think when their leaders suggest a possible trade. They just do it.

“Take for example the strange case of the rectal “earache” reported by Cohen and Davis. A physician ordered ear drops to be administered to the right ear of a patient suffering pain and infection there. Instead of writing out completely the location “Right ear” on the prescription, the doctor abbreviated it, so that the instructions read “place in R ear”. Upon receiving the prescription, the duty nurse promptly put the required number of ear drops into the patient’s anus. Obviously rectal treatment of an earache made no sense, but neither the patient not the nurse questioned it. “