Thoughts on investment (26)- review on ‘Influence’(2)

For the first part of review on ‘Influence’(1) please check here.

Liking

Few people would be surprised to learn that, as a rule, we most prefer to say yes to the requests of someone we know and like, even without his or her presence.

Many cases show that the strength of the social bond is twice as likely to determine product purchase as is preference for the product itself.

Then what are the factors that cause one person to like another person?

Physical attractiveness

It is generally acknowledged that good-looking peple have an advantage in social interations, thus it makes sense that sales training programs include grooming hints, that fashionable clothies select their floor staffs from among the good-looking candidates, and that con men are handsome and con women pretty.

Physical attractiveness actually is another way of sexual expression or social proof (professional outfits) that coming from long-time natural and social evoluation.

Similarity

We like people who are similar to us. This fact seems to hold true whether the similarity is in the area of opinions, personal traits, backgroud (for example alumni, same home town, etc.), or life-style.

People view familiar enviroment and people as safer and not as hostile than strange places and distinct people, and thus may feel much comfortable about anything familiar places and similar people.

Compliments

We are phenomental sucker for flattery. We tend, as a rule, to believe praise and to like those who provide it, oftentimes when it is clearly false.

I guess compliments are a way of proving other’s social status – a way of social proof, which we are looking for within a society, thus naturally we would like compliments even though sometimes they are taken advantage of by exploiters. 

Contact and cooperation

Some research showed that we are more favorable toward the things we have had contact with. However, school desegregation is more likely to increase prejudice between blacks and whites than to decrease it. The students tend to clot together ethinically, seperating themselves for the most part from other groups.

But why is that? That’s because the current enducation system encourage competition instead of cooperation. The current teaching process guarantees that the children with not learn to like and understand each other. Children who fail in this system become jealous and resentful of the succeses, putting them down as teacher’s pets or even resorting to violence against them in the school yard. The successful students, for their part, often hold the unsuccessful children in contempt, calling them “dumb” or “stupid”. This competitive process does not encourage anyone to look benevolently and happily upon his fellow students. 

Even Elon Musk got constantly bullied at school because of his insimilarity with others as being a bookworm, causing his decision to leave South Africa to Canada.

One of the resolution is the concept of “cooperative learning”that the forms of learning in cooperation rather than competition. When presented with the common crisis and realizing the need for unified action, the children organized themselves harmoniously to find and fix the problem. So the crucial procedure was the experimenters’imposition of common goals on the groups.

Conditioning and association

There is a natural human tendency to dislike a person who brings us unpleseant information, even when that person did not cause the bad news. People are really bad at clarify what’s the cause and what’s only associated with an incident.

Which makes sense for nearly all animals is that finding association is a much efficient, and thus power saving way of finding an answer than going all the way to find the cause or the reason.

As the famous psychologist Ivan Pavlov’s experiment showed: he could get an animal’s typical response to food (salivation) to be directed toward sth irrelevant to food (a bell) merely by connecting the two things in the animal’s mind.

As a result, the commercials are incessantly trying to connect themselves or their products with the things we like. That’s why all those good-looking models are doing standing around in the automobile ads. The advertiser hopes they are doing is lending their positive traits – beauty and desirability – to the cars. The important thing for the advertiser is to establish the connection：it doesn’t have to be a logical one, just a positive one.

People understand the association principle well enough to strive to link themselves to positive events and separate themselves from negative events. All things equal, your root, your own culture, your own locality… whomever you root for represents you; and when he wins you win.

Like wise, the passion of the sports fan begins to make sense. The game is no light diversion to be enjoyed for its inherent form and artisty (no say these are not important). The self is at stake.

We are also tend to try to bask in reflected glory by publicly trumpeting our connections to succesful others, but also try to avoid being darkened by the shadow of others’ defeat. We purposefully manipulate the visibility of our connections with winners and losers in order to make ourselves look good. For example, we tend to say “we win”when our team wins, however we are more willing to say “they lose”when the team loses as we are trying to avoid the bad association while keeping the good ones. 

Association works in many ways in investment as well

1, At least some of the basis for technique analysis is that people are always naturally associated the stock’s furure performance with its past performance, for example what its last performance around a certain price point. It may work well if quite many investors are associating it at the same time. People tend to neglect its reasons for the last time performance, and just try to predict its future performance using its last one as a proof, eventhough it is more of an association than a cause.

2, Quite normally once a company performs well invetors would assume others in the same category will do the same as investors associate the bellweather as a proof of success, at least in the short term. And this imagination can sometimes reach quite far, as for example, China A share investors constantly trade in concept stocks associating with their American counterparts, sometimes even remotely.

Authority

Follow an expert -- Virgil

Social reasons

I believe that the tendency people repect to the authority is mostly from 1, believe in the expects is efficient for most of the times; 2, the social order needs people to follow their leader in order for the group to survive, thus members would get rewarded for obediance.

Connotation, not content

It is able to use the influence of the authority principle without ever providing a real authority. The appearance of authority is enough.

There are several kinds of symbols that can reliably trigger our compliance in the absence of the genuine substance of authority, for example titles, clothes, and trappings of authority.

In investment we should always check

“Is this authority truly an expert?”

People tend to automatically accept what the company officials, industry experts, well known analysts, famous invesors said as trustworthy, no question asked. However, to be a good investor, we should always check their authenticity, in stead of taking them for granted.

Scarcity

The rule of the few

The way to love anything is to realize that it might be lost – G. K. Chesterton

The Principle

Scarcity principle: that opportunities seem more valuable to us when their availability is limited. The idea of potential loss plays a large role in human decision making. In fact, people seem to be more motivated by the thought of losing sth (afraid of missingout) than by thought of gaining sth of equal value.

Probably the most straitghtforward use of the scarcity principle occurs in the “limited number”tactic, when the customer is informed that a certain product is in short supply that cannot be guaranteed to last long.

And related to the limited-number technique is the “deadline”tactic.

For example, bitcoin use both of these tactics, as its newly release will significantly reduce in a certain destined time. The caused shortage supply is one of the major reasons for its price hype.

Psychological reactance

The power comes from two major sources. Like the other weapons of influence, the scarcity principle trades on our weakness for shorcuts. The weakness works for the most of time, because we know that the things that are difficult to possess are typically better than those that are easy to possess, we can often use an item’s availability to help us quickly and correctly decide on its quality. By following it, we are usually and efficiently right.

There is a unique, secondary source of power within the scarcity principle: we hate to lose the freedoms we already have. The desire to preserve our established prerogatives is the centerpiece of psychological reactance theory. Whenever free choice is limited or threatened, the need to retain our freedoms make us desire them significantly more than previously.

This tendency may start of the third year of a child. It is then that they first come to a full recognition of themselves as individuals. No longer do they view themselves as mere extensions but rather as identifiable, singular, and separate. This developing concept of autonomy brings naturally with it the concept of freedom and privacy. An independent being is one with choices.

Thus, any authoritarian government which try to limit its citizens choices is actually against their human nature.

For example, almost invariably, our response to the banning of information is a greater desire to receive that information and a more favorable attitude toward it than before the ban.

That is the more you want to restrict the access the stronger desire would be…

The realization that we value limited information allows us to apply the scarcity principle to realms beyond material commodities. The principle works for messages, communications, and knowledges (that’s why so many claiming exclusive news), too.

Opimal conditions

Do we value more those things that have recently become less available to us, or those things that have always been scarce? The answer is plain. The drop from abundance to scarcity produced a decidedly more positive reaction than did constant scarcity.

James C. Davies stated that we are most likely to find revolutions where a period of improving economic and social conditions is followed by a short, sharp reversal in those conditions. It is not the traditionally most downtrodden people – who have come to see their deprivation as part of the natural order of things – who are especially liable to revolt. Instead, revolutionaries are more likely to be those who have been given at least some taste of a better life. 

If coupled with competition

In the pursuit of limited resources, we want the same item more when it is scarce, we want it most when we are in competiton for it. Advertisers often try to exploit this tendency in us. There is more to such images than the idea of ordinary social proof. The message is not just the product is good because other people think so, but it also that we are in direct competition with those people for it.

Scarcity principle in investment

The scarcity principle happened in invesment in many ways:

1, If the stock has some value proposition that the market lack of, for example the company is anti-recession, it might be more appreciated by the investors during the time of economic melt down;

2, When the stock or the market looks like to be a bull one and the price is going up substentially, the investors would feel the fear of missing out and become even more propelled to buy in;

3, Bitcoin is an excellent example of using scarcity principle to drive up prices.

Instant influence

Primitive consent for an anutomatic age

Very often in making a decision about someone or something, we don’t use all the relevant available information; we use, instead, only a single, highly representative piece of the total. And furthermore, the pace of modern life demands that we frequently use this shortcut. This mechanical fashion can conserve much of our limited brainpower for dealing with the variety of the situations and choices we must face everyday. We certainly don’t have the inclination, time, energy, or cognitive resources to undertake a complete analysis of all the situation. Where we are rushed, stressed, uncertain, indifferent, distracted, or fatigued, we tend to focus on less of the informaiton available to us. When making decisions under these circumstances, we often revert to the rather primitive but necessary single-piece-of-good-evidence approach.

However, an isolated piece of information, even though it normally counsels us correctly, can lead us to clearly stupid mistakes. And that’s why understand the fundamentals, causes and counter messures of these ‘influences’ would be a great benefit for us in the future decision making.

“If you can not make a stock pitch in one minute, it must be a bad one”

There is an old saying famous in the investment world: “if you can not make a stock pitch in just one minute, it must be a bad one”. And the same goes well in self-introduction, product promotion, TV commercials, etc.

The fact that we only have a short memory and limited brain power to handle all sorts of things that the inclination for short-cut actually goes to all the facets of our lives unnoticed.

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欢迎阅读往期内容：

1. 投资思考随笔21-疫情对投资的影响推演和思考