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Preference Falsification

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I had a strong feeling that Donald Trump would win the US Elections in 2016 and I wasn’t shy saying so. My wife told me to stop bringing it up when we were invited out for dinner parties, she said it makes me look like an idiot and it usually sparks a fight but I persisted. I can’t help myself as a natural contrarian.

 

People often wonder why unexpected things happen. I want to share an insight why I think people are often caught off balance when information reported is different to what lands up happening.

 

I am sure every one of us reading this letter has been exposed to peer pressure. It really is extremely hard, almost impossible, to go against a group of people’s views or actions. We have seen seemingly good people do terrible things out of fear of upsetting the group or just embarrassing themselves by seeming stupid for sharing a minority opinion.

 

The reason the polls got it so wrong in the buildup to the US Election’s was because Trump was such a divisive character people couldn’t even admit to the pollsters that they were going to vote for him. I have met so many people who have told me that they would never tell anyone they vote or like him for fear of backlash. I am not making a comment here on the man, I am just saying that I thought he would get in and do a better job than most thought him capable of because he just doesn’t care what the establishment expect and sometimes to create change that kind of behaviour is necessary.

 

In Australia housing is considered the 1st religion of the country. Australia is into a world record for a country going without a recession. With low interest rates and high population growth, property has rocketed making a large part of the country paper millionaires. There is a feeling of invincibility, that prices can only go up. This illusion was slightly diminished over the previous 12 months as prices started coming down. However with the Reserve Bank lowering interest rates and regulators relaxing prudential requirements we are seeing prices increase once again. I continue to be among the lone voices willing to call a correction to the excesses. I believe we will once again start to see prices drop simply because people cannot afford the current prices and there isn’t enough steam in the economy to sustain it. You cannot drop interest rate much more from 1%. Eventually interest rates will normalize and employment will suffer some setbacks and prices will fast find a new normal.

 

Finally we are witnessing the most hated bull market in history. Some of my most commented posts on social media come from me calling for a correction in the markets. For some reason people cannot bring themselves to speaking openly about a market that has rewarded the irresponsible. The Great Recession was caused by bankers lending excessively. Not only were they not punished with job losses and insolvency. They were in fact rewarded with massive bonuses by lending even more. Interest rates and lending criteria have become so easy that people are so saturated with debt that they don’t want to borrow anymore. To keep this crazy party going because nobody wants to accept any responsibility things have become even more bizarre. Now institutions are paying borrowers with negative interest rates. Go figure.

 

Professor Timur Kuran came up with concept called Preference Falsification in 1997 and has done a lot of research on the subject. I would like to suggest that if you would like to get a true picture of something that is important to you, the best way is to create truly anonymous surveys.

 

I believe many of the sentiment surveys conducted for the trading community are subject to preference falsification. I think our OFSi trading tool has the ability to help provide an accurate picture of what the market participants are thinking at a particular time because it shows the actual positions of more than 25,000 traders at a given moment in time without the ability for participants to falsify their true position.

 

 

In conclusion, with the increase of social media and the media in general I think we will see more and more preference falsification. Expect outcomes to be different to what the media projects as people are too scared in many instances to share their true feelings.

 

Regards, Michael Berman, Ph.D.

CEO & Co-founder PsyQuation

 

The Deviance of the Standard Deviation Performance Fee Survey