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This is one of my favorite articles from our favorite trading book.
It stands as a testament to WHY we need to re-program our brains in becoming consistent with our trading discipline. Our addiction to random rewards is a powerful one.
*Excerpt from "Trading in the Zone" - By Mark Douglas*
Several studies have been done on the psychological effects of random rewards on monkeys.
For example, if you teach a monkey to do a task and consistently reward it every time the task is done, the monkey quickly learns to associate a specific outcome with the efforts. If you stop rewarding it for doing the task, within a very short period of time the monkey will simply stop doing the task. It won't waste its energy doing something that it has now learned it won't be rewarded for. However, the monkey's response to being cut off from the reward is very different if you start out on a purely random schedule, instead of a consistent one.
When you stop offering the reward, there's no way the monkey can know that it will never be rewarded again for doing that task. Every time it was rewarded in the past, the reward came as a surprise. As a result, from the monkey's perspective, there's no reason to quit doing the task. The monkey keeps on doing the task, even without being rewarded for doing it. Some will continue indefinitely. I'm not sure why we're susceptible to becoming addicted to random rewards.
If I had to guess, I would say that it probably has something to do with the euphoria-inducing chemicals that are released in our brains when we experience an unexpected, pleasant surprise. If a reward is random, we never know for sure if and when we might receive it, so expending energy and resources in the hope of experiencing that wonderful feeling of surprise again isn't difficult.
In fact, for many people it can be very addicting. On the other hand, when we expect a particular outcome and it doesn't come about, we're disappointed and feel bad. If we do it again and get the same disappointing outcome, it isn't likely that we will keep doing something we know will cause us emotional pain. The problem with any addiction is that it leaves us in a state of "choicelessness."
To whatever degree the addiction dominates our state of mind, to that same degree our focus and efforts will be geared toward fulfilling the object of that addiction. Other possibilities that exist in any given moment to fulfill other needs (like the need to trust ourselves and not to subject too many of our assets to risk) are either ignored or dismissed. We feel powerless to act in any other way than to satisfy the addiction. An addiction to random rewards is particularly troublesome for traders, because it is another source of resistance to creating the kind of mental structure that produces consistency.
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