Tuesday, September 30, 2014

How Can We Make Ourselves More Intelligent?

The recent post suggested that trading ability may be more linked to intelligence than is ordinarily acknowledged.  That is because intelligence embraces both crystallized knowledge (what one knows) and fluid abilities (what one can do with what one knows).  It is the latter, fluid abilities--not the crystallized information that tends to be tapped by achievement tests--that are most like trading, where reasoning in fast-moving situations is critical.

Can people become more fluidly intelligent?  Despite early views that intelligence is rather stable across the lifespan, more recent research suggests that it is indeed possible to increase fluid intelligence.  Training in a task involving working memory extends to performance on fluid intelligence tests that are not directly memory related.  Moreover, there is evidence that suggests that more training produces more gains in fluid performance.

A version of the game used in that research to improve fluid intelligence can be found here.  What is interesting is that the game requires good short-term memory, flexible thinking, and rapid thinking.  All are skills very relevant to trading.  Researchers hypothesize that the boosting of fluid intelligence strengthens the brain's executive functions by aiding problem solving.  This is opening the door to apps specifically designed to make us more fluidly intelligent.   

There are two big implications of this research.  First, it may well be that the right kind of deliberate practice in simulation mode not only teaches trading patterns and skills, but acts as a fluid intelligence booster.  By requiring traders to reason quickly in moving markets and providing them with immediate feedback regarding their decisions, simulated trading could be good brain training.  Game playing could be great training for trading.

A second implication is more profound.  Perhaps traditional trading psychology has had it all wrong.  What if it's not lapses in discipline and emotional interference that lead to bad trading, but rather failures of fluid intelligence?  If traders do not hold the right information in working memory and can't juggle that information in real time to make quick decisions, that could easily lead to frustration and other emotional interference.  The cause of the trading problems, however, would be a lack of fluid thinking, not the consequent emotional reactions themselves.  If that is the case, perhaps what losing traders need is brain training and not sessions with the shrink!

Further Reading:  Could Chess be a Form of Fluid Intelligence Training?