Lessons - How to Make Decisions Without Bias, Denise K. Shull - Founder of The Rethink Group

Hi, it's Scott here. On these lessons, episodes of my podcast, I'll be selecting my favorite lessons from various guests and episodes of success story. Today, you're going to hear from Denise K. Schultz. She is an internationally recognized leader in the market investing and trading psychology space. Her expertise in neuro-economics, the mental game of trading, and markets themselves make her an extremely popular speaker and educator at Wall Street conferences. She has coached hundreds of portfolio managers on the psychological game of trading and educated thousands more in what neuroscience is revealing about how we truly process risk decisions. Her clients span four continents and ten countries. She has an MA from the University of Chicago in Neurocycle Analysis. She formerly ran trading desks in proprietary trading shops and she is the author of market mind games, which has been reviewed as the Rosetta Stone of Trading Psychology. She has appeared in the media numerous times, in particular her appearance on CNBC's Squawk Box in both the USA and Asia received rave reviews. She has been profiled by financial times and Wall Street Journal and today she is going to speak to you about how to make decisions without any sort of bias. What do you recommend people after you show them the light so to speak and they start to understand that every decision that they make has all these biases attached to that decision, then how do they go through life? So the question to learn to ask yourself and to answer accurately, those are two-step tasks, but is what am I feeling and why am I feeling it? And you want the answers to be the truth. Now that's easier said than done. A lot of my coaching is like helping people get the accurate answer because what they think they're feeling or why they think they're feeling this generally not what it is. This will, by the way, circumvent the cognitive biases. So a thing in the behavioral findings, cognitive bias, confirmation bias, recency bias, the literature is way bad, your human brain is biased, and there's nothing you can do about it and you're stuck with that. It's not true. It's based on the wrong model of the brain. I mean, it's called behavioral finance or cognitive behavior because it's like thinking and doing, thinking and behaving, you know, like the juices in the feeling. The cognitive behavior world doesn't get that. So like confirmation bias, when you see the thing you want to see, well, everyone talks about how difficult it is to circumvent that or to a verdict, well, all you have to do is realize what's that feeling and what that feeling is usually like, if you, and this happens all the time with hedgemen managers, I mean, I had a relatively new client yesterday talking about like he went to his investment committee and he stated like his viewpoint and he's in commodities, you know, and so this is my viewpoint of how commodities are going to play out. And then he said, you know, if he starts to look like he's wrong, you know, he doesn't really want to go back to the investment committee and say, you know, I'm the second thought I never mind. I was wrong. Because why? Because it's embarrassing. You know, he's afraid he'll react negatively. So people behave in what looks like confirmation bias, either they only see the data that supports whatever their viewpoint are against, not because they're just programmed to do that because at the moment that they're seeing conflicting data, they're predicting this future of motion that, you know, that's unsafe, right? They're going to be embarrassed. Their boss is going to be mad at them. And they're basically trying to avoid that scenario. Well, the truth is if you face that scenario earlier in your process, whatever, the chances that you end up with the embarrassment go down. Because like, when you, you've stated some, you know, prediction to your firm, whatever it is, I don't care, sales and investment, I don't care whatever it is. And you start to get information that's not working out the way you thought. Well, the sooner you get that and sooner you change course and address, you know, the better the odds of a better outcome, right? But if you delay, because you don't really realize you're predicting this future of embarrassment, the outcome is probably worse. But like, people have no cognitive ability to override that underlying prediction of embarrassment, except to use their thinking to address, wait a minute, I'm really worried. You know, I don't want to try to be wrong because I have sounded like an idiot. It's going to be embarrassing. And they've no way to lose my job just because people have tendency to catastrophize. But the truth is, the earlier an incident that you can face, you know, alternative data that shows your prediction may not be turning out to be like, chances are you can course correct earlier. But it requires knowing that you're feeling like you're predicting this future problem. That's going to give you, it gives you the space to navigate. They don't have, if you're just like torturing the data to prove that your original prediction is correct while you're crossing your fingers and hoping and experiencing all the same side, I don't know, I hope I try to do that, you know, when you say, when you, when you lay it out, it actually makes a lot of sense. But you, I guess, so the issue that we're sort of uncovering is a little bit of, like you mentioned, like we have biases, but after a certain point, there's ego involved. You just don't want to be embarrassed. So when, when you speak to people that operate at this level, the things that are fears, are they valid fears? Like in my opinion, they would be valid fears. Like if I make a sales prediction and it's totally off at any point when I bring that up with my board, they're probably going to have some level of, there's going to be some thought like as to whether or not I'm competent. That's it. Yeah. Of course. Right. Right. Like if you walk through the scenario, it's like completely logical, right? Like, so this is the thing, like an emotion, particular fear, has a totally bad rap, right? Like you're not supposed to feel, feel fear or give into fear or whatever. And like, it's not true. Like if it weren't for fear, there's a lot of accomplishments we all have that we wouldn't accomplish. Like who would really graduate from college if it weren't for fear? Right. You'd do all this other stuff, you know, but you're afraid of the outcome of only partying and not getting the actual degree, like so you'd do the work, you know, you really do the work just because you want it to work, right? Like you do the work because you're afraid of what will happen. Like in their pure form, fear, frustration, disappointment, have information for us. So we've got two problems. We've been told not to recognize any of them and we've certainly been told not to focus on this so called negative ones. When they're in their pure form, they're actually trying to help us. They're trying to keep us safe, trying to help us get what we want. Like frustration is something's going wrong. Take the extreme form of frustration, well, the extreme form would be like rage, but let's take an interim anger. Why do people get angry? Because they feel as if something's wrong. So sometimes it is and sometimes it's their own personal expectation and that's like the next layer of this, what part is real and what part is your own personality, but we can come back to that. And it's core. Like if you're angry with something, your psyche is telling you that something isn't the way you think it should be and maybe you should try to research yourself and find out what that is. This is supposed to say I shouldn't be angry because what the research actually shows is you suppress those emotions, particularly the negative ones, the voice in your psyche gets louder. So they become more disruptive, not less disruptive. And the way it shows is if you suppress it, I mean, there's, you know, I mean, the truth is, you know, in psychology research, you can probably find research to show whatever you want, but there is a good body of research that shows that understanding your negative emotions, acknowledging them leads to better outcomes, particularly that matters to you. When I first heard of this research, it was probably 2008 and I met this woman who at that time was like a postdoc PhD and she had done this research project to show that reframing, you know, situations was a net positive. And to her credit, her research showed that wasn't true. But if you reframed, in other words, you know, took a positive viewpoint or something, on something that didn't matter that much to you, it worked. But if you did it on something that actually really mattered to you, your anxiety levels went up and it didn't work. Why? Because your psyche, like, your psyche really is trying to keep you safe and that kind of includes more than safe, like, it includes thrive. So if you have some unpleasant feeling, it's like, you know, I'll send you, like, feel this horrible pain in your leg and you look down and you know, you've got to gash in your chin for whatever reason, you know. Like, what's the point? The point of the physical pain is like, so that you do something about it. Why is it any different with emotional pain?