Tuesday, September 23, 2014

Interview With Ted Hayes, Ph.D., Part One: The Two Drivers of Elite Performance

Ted Hayes, Ph.D. has spent a career studying human performance and what makes successful people tick.  Most recently he has been studying trading success as part of a research effort at Zolio.  Zolio is unique in that it is a real-time simulation trading platform that enables talented up-and-coming traders to demonstrate their skills for investment banks, hedge funds, and other trading firms.  Ted is leading an effort to study trader success at Zolio, and he has arrived at some interesting conclusions.  

Ted is also an Adjunct Assistant Professor of Organizational Sciences at George Washington University and has served as a Senior Research Director for the Gallup Organization.  My interview with Ted will be in several installments, as he had a great deal to share.

Brett:  Hi, Ted.  Perhaps you can tell readers a little bit about yourself and your areas of interest as a researcher and psychologist.

Ted:  Sure, thanks for this conversation Brett! My name is Ted Hayes and I am a research psychologist based in Northern Virginia. My interests are in the nature of human performance, especially among higher performing people. The one question I want to answer is, what is it that makes people successful?

My first internship was to help study predictors of success for U.S. Navy Explosive Ordinance Disposal divers. Talk about a high-stakes environment! And in that study we found that measurable aspects of personality predicted training success. I was hooked on psychological measurement from then on.

Performance among traders is different from performance among EOD divers but the same types of human performance attributes are linked to positive outcomes. That’s one of the exciting parts of my work.

Brett:  What are some of the most important factors that determine a person's satisfaction and performance in a career field?

Ted:  I’ll start by defining some terms to ensure that we (you, me, the readers of your blog) have a common frame of reference.

Vocational interests are expressions of what an individual finds rewarding in terms of social interaction, external rewards (i.e. remuneration) and social status, and a sense of personal meaning. For example, many people go into finance or trading because they like the potential for high income; an example would be Charles Schwab. The same type of people, interestingly, would make great intelligence analysts, and in fact the traders and intelligence analysts I’ve worked with have very similar talent sets. But while the money certainly could and should be a factor in vocational choice, you, Brett, have written about how trading involves ‘the rage to master’ — I love that term. So one could find trading to be a rewarding career because of the desire for high income but maybe you’ll be happier longer term because you want to understand markets, enjoy being the master of your own fate, find satisfaction in calculating the right risk ratios.

In short, you will be happy in a field if you understand your motivations and then are able to match your motivations to an environment that will reward those motivations. Day traders might be more at one point of the scale while prop-desk traders at banks would be at another point. Both groups would be trading but possibly for different reasons, so satisfaction is a personal sense of accomplishment based on understanding what makes you ‘tick.’

Brett:  So what you're happy with and what you do well could be different things.

Ted:  Yes, performance is very different from satisfaction. For example, if you want to run a macro fund but you’re starting out in day trading, well, that won’t last long. So that’s why from a research perspective we expand the toolkit beyond vocational interests to measure the psychology of human performance.

Over 100 years of world-wide professionally conducted empirical research on human performance, combined with a few more decades of study on human cognition, could be summarized as follows:

Cognitive ability enables one to make sense of data, integrate new information with previously learned information, and retrieve information to create new work products. But before your readers with perfect SAT scores or A-level exams start congratulating themselves, let’s acknowledge that being among “the smartest guys in the room” doesn’t mean you’ll be successful; just look at what high IQ did for Enron. And as you and I know from our work with traders, a lot of successful traders think people with academic smarts are, well, stupid. What distinguishes “smart” from “successful” is good decision-making. So the question is, why and how do people make good decisions?

Two completely different strains of psychology converge to address making good decisions. First, research and thinking in cognitive psychology has converged on the two-stage model for judgment and decision making — as Daniel Kahneman puts it in his book’s title, “Thinking, Fast and Slow.” The Canadian psychologist Keith Stanovich also poses a two-stage model of rationality in which there are snap (‘fast’) decisions, which are prone to bias and heuristics, and deliberate (‘slow’) decisions, which in theory are based on data, subject to de-biasing, and ultimately more “rational.”

Brett:  So performance is tied to our abilities to process information. 

Ted:  Yes, but this is only part of the picture. One could ask, do people really only make judgments based on data and algorithms? Of course not. Deliberations and decisions reflect our tendencies, preferences, allegiances, anxieties, values, biases, temperament, and motives, or, in other words, our personalities. 

Personality drives behavior, especially in work settings. World-wide empirical research over the span of 100 years has settled this issue at least to that extent.

Personality reflects your interests, temperament, values, etc. as filtered by your social skills. In other words, your reputation is a proxy for your personality. In fact current research shows that other people’s ratings of you on personality tests are better predictors of your work performance than are your own personality test ratings of yourself.


Let's step back for a moment and reflect on what Ted is proposing.  He is identifying two broad factors that contribute to performance:  cognitive ability and personality.  Both are crucially involved in decision-making.  Cognitive ability breaks down into fast thinking--the kind of pattern recognition we see among successful short-term traders--and slow, deep thinking.  That's the kind of analysis that we see among global macro portfolio managers.  It is difficult to imagine that a trader can be successful without having at least one of those areas well-developed.

On the other hand, all the skills and knowledge in the world will not translate into performance if those cognitive assets are not supported by personality traits.  As Ted points out, we all know very smart people who are not top level performers--in markets or elsewhere.  It is the ability of personality traits to channel cognitive ability that contributes to world class performance.

In the next segment of the interview, Ted will shed light on the specific personality traits that are associated with performance success.

Further Reading:  The Best Predictor of Trading Success