Mental Models Archives - New Trader U

30 Cognitive Biases & Psychological Misjudgments (Do You Know Thyself?)

Cognitive biases and psychological misjudgments are inherent ‘faults’ in our thinking process that can affect our decision-making abilities and perceptions. They have deeply embedded patterns of human thought and behavior that can lead us to perceive reality inaccurately and make irrational choices. Cognitive biases are systematic errors in thinking that can occur when we process …

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People Who Like To Be Alone Have These 12 Special Personality Traits

Mental Models / By Steve Burns

Being alone can often carry a negative connotation, as society tends to value extroversion and being surrounded by others. However, being alone can be a source of strength, creativity, and personal growth for those who embrace it. People who like to be alone often have special personality traits that allow them to thrive in solitude …

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Bayes Theorem, the Geometry of Changing Beliefs

Mental Models / By Steve Burns

Bayesian thinking is successfully applied to professional fields requiring statistics and also to those considered outside of traditional statistics like education, computer programming, software, philosophy, economics, medicine and the practice of law. Bayesian thinking is a mental model which allows us to adapt our thinking reactively to new evidence as it arises and adjust our …

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Mental Models: The Best Way to Make Smart Decisions

Mental Models / By Steve Burns

Mental models are a theoretical or scientific framework used for making decisions based on how someone believes the world works. Mental models start with internal beliefs and can be based on many factors like opinions, beliefs, facts, history, science, data, or patterns. The best mental models correlate with reality and give users a pathway to …

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Ethos Pathos Logos Meaning

Mental Models, Thinking / By Steve Burns

It is important to know what persuades us to make the decisions we do in life whether it is in our investments, personal finance, relationships, beliefs, or politics. Aristotle is believed to have explained the three modes of persuasion that we can experience as: Ethos, Logos, and Pathos. We can think more clearly in situations …

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Law of Small Numbers

Mental Models, Probabilities / By Steve Burns

The law of small numbers is a fallacy that leads people to believe that a small sample size of data will be enough to resemble the normal data of the whole and determine the probabilities of future sample sizes. In trading this error would lead someone to backtest one year’s worth of price action signals …

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Sturgeon’s Law: 90% of Everything Is Crap

Mental Models / By Steve Burns

Sturgeon’s law states “Ninety percent of everything is crap.” The saying came from the science fiction writer Theodore Sturgeon. Sturgeon came to the conclusion that even though science fiction was criticized at the time (1951) for its low quality it was true for all fields. The majority of work in all professions were also low …

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Recency Bias: Recency Effect

Mental Models, Trading Psychology / By Steve Burns

Recency bias is a cognitive based bias that gives more meaning to the most recent events that have happened versus older and more distant ones. It is a type of memory bias giving the most weight and importance to things more easily remembered due to the short time frame from occurrence. This can be seen …

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The Cognitive Bias Codex

Mental Models / By Steve Burns

A cognitive bias is a mental pattern that breaks from logic, reason, and the ability to rationally judge something through the filter of facts and reality. It is when an individual’s thinking is so clouded by their own subjective reality, memories, and experience that they are unable to interpret new information correctly. A cognitive bias …

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Creating A Regret Minimization Framework

Mental Models, Self Help / By Steve Burns

Mental models are used as frameworks and filters and a way to think about the world and make the right decisions based on principles. Mental models are not always correct but they can raise your probability of having success with how you think and the decisions you make based on robust principles. Jeff Bezos used …

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