Monday, June 23, 2014

Minding Our Embodied Cognition

An important line of research and thinking in cognitive neuroscience suggests that, not only does the body hear the mind, but our consciousness is also influenced by our physical states.  Embodied cognition means that much of our thought is grounded in physical experience and metaphors that link body and mind.  Consider the psych experiment on priming where people were asked to rate a stranger.  In one condition the raters held a warm cup of coffee; in the other, they held a cold cup.  The first group rated the stranger as significantly more trustworthy than the second group.  Literally, the first group had warmed up to the other person.

Damasio's somatic marker hypothesis suggests that cognition is embodied as experienced states.  When traders say they have developed a "feel" for markets, they may be literally correct.  What we typically call intuition may be felt knowledge:  our body's preconscious apprehension of a situation.  We have all had situations in which something just didn't feel right, though we couldn't put our finger on the source of our concern.  Similarly, we may have a gut hunch about the right answer on a test, even though we cannot pull up the specific material we had studied.  The somatic marker idea suggests that what we feel is inextricably linked with what we know, shaping our preferences and choices.

In recent posts, I have suggested that a key to peak performance is our ability to control our internal environments, as well as our external ones.  Tuned minds and bodies are most likely to be sensitive to the felt signals that deliver our embodied knowledge.  A noisy environment--whether the noise is internal self-talk or external chatter--is likely to drown out the subtle cues that give us our market feel.  Because somatic markers are so crucial to fast pattern recognition, trading performance is likely to be a function of our capacity to access those signals.  

It is common for traders and portfolio managers to ground their ideas in explicit research and reasoning.  Once the idea is generated, however, what determines when and how we act on it and how we manage its forward path?  We like to think that all of those decisions are codified and made mechanical via trading plans.  My experience, however, is that the implementation of such plans is greatly influenced by market feel at the time of trade execution and position management.  This is not to suggest that trading decisions are "irrational"--rather, decision making may be a much more complex interplay of body and mind than we typically acknowledge.  

If this is the case, the next leaps in trading psychology may come, not from helping traders tame their emotions, but from enabling them to become better generators and receivers of their embodied wisdom.

Further Reading:  Biofeedback and Self-Control