The Asch Experiment: Trader Conformity

In the early 1950s, psychologist Soloman Asch carried out an experiment that would later go on to become a classic study of human behavior.

In the experiment, imagine you are 1 of 6 people sitting in a classroom, in preparation for an observation test.

An instructor comes in and presents to you a series of black lines:

(image credit: Wikipedia)

Each volunteer is now required to say out loud, which line on the right is of the same length as the line on the left.

Seems easy enough!

The first volunteer says “B”.

The second volunteer says “B”.

The third volunteer says “B”.

The fourth volunteer says “B”.

It is now your turn… what do you say?

Surprising Results

As it turns out, 70% of the test subjects were likely to have said “B” at some point.

What the test subjects didn’t know is that this was not really an observation test, and that all the other volunteers were collaborators.

This was actually a test on how group opinion influences that of the individual.

In 12 trials, 75% of participants gave at least one wrong answer by going along with the other volunteers.

Control Experiment

In a control experiment where there was no pressure to conform to the other “volunteers”, the error rate dropped to less than 1%.

Interesting, isn’t it?

Conformity In Trading

In the world of trading, conformity to group opinions is a dangerous thing, because after all, the majority of retail traders lose money.

So think about what you’ve learned from various trading forums, books and websites.

Have you verified any of it? Or have you just followed the popular opinion, and assumed that it’s correct?

With human nature being what it is, the Asch experiment is likely to continue being relevant to us (human beings) for a long time.

By |2018-12-17T19:08:05+00:00November 14th, 2018|Philosophy|4 Comments

4 Comments

  1. Gary Speece September 2, 2015 at 9:51 am - Reply

    Very interesting.Id like to think I don’t fall into that category of following the heard.We all need to think about the Ash experiment every now and then.
    Gary

  2. Godson September 2, 2015 at 11:51 am - Reply

    You’re right Chris. Conformity without proper self-evaluation is the easiest way to recurrent failures. Rationality demands that humans must make informed decisions based on the knowledge available to them. Information and data must be processed and verified before they become facts. The Asch experiment is apt and have ramifications in all human endeavour. Trading in particular is not an exception.

  3. Benito September 2, 2015 at 1:10 pm - Reply

    Thinking for yourself is not easy however with some discipline it can be achieved

  4. Paul odibeli September 18, 2015 at 12:11 pm - Reply

    Independent thinking, is the way based on knowledge acquired.i have come to realize that many traders don’t seek knowledge,but simply follow or go by what their peer/traders group says or thinks thereby leading to majority of traders loosing money. Thank you Chris for this article.

Leave A Comment