Does anyone have any research on what I call the referral paradox. The ability of people myself included to belive that information increases in value if someone else tells it to you. Simply put is person A who I don't know tells me something about person B who I don't know. Why do I belive it? I mean basically it means absolutely nothing. Think of all the talking heads on Bloomberg and CNBC If you filter what they say 99.9% is irrelevant crap! In spite of knowing this, I find that humans seem to be very suseptable to this referral issue. If somebody says the dollar is going to go down then it will go down. It seems to me that the entire financial industry is based on this referral paradox?
No research. However I believe that things are actually going the opposite way: increasingly people recognize that most so-called information in the media - email/IM, print, internet, broadcast TV/cable, radio - is devoid of any real content. That is, most of it is noise and the net effect is that people actually disregard more so-calle "information" as noise (regardless of whether it is valid.) The only thing that peopleprobably take at face value are news items like natural disasters and even there information beyond the mere statement of the incident is suspect ....
Interesting. You know, since this so-called syndrome is raised, there is a pattern to people as there is to trading price gyrations. People repeat there failure and success habits in their problem solving endeavors and personal interrelationships. Its not so much the content of what people say than the way their minds put a particular spin on that content, any content, and also what they don't say. Again the similarity is that with applied focus you will find that people are predictable to the extent that a days trading is predictable with a predictive trading model. Do I spend my time predicting what people will do? No, not at all, except if its business or something that matters to me.
I don't think I am getting my point across, what I am referring to too is the Human bias to belive that information has more value if somebody else tells you rather than you figured it out for yourself. For example, "You say time flows forward, well I belive a man called Stephen Hawking, who says past present and future don't exist" Notice the reference to Hawking, amongst lay people his word is God, yet amongst theoretical physicists He is considered bright but far far less important. The problem is so infectious that people even accept advice from people they have never met. A wants to employ B, phones C whom he has never met, C tells him B is a thief. What does A do, he doesn't employ B why just in case where there is smoke there is fire etc. (Like maybe C is a liar) My point is in this last example you are no better off then you were before you asked C for his opinion. If I think about my own reactions things like the last example stick with me and affect my subsequent decisions. Hopefully you can begin to see what relevance this has too trading. Your system tells you to go short, Some broker/analyst issues a buy recommendation the stock goes up, you hesitate to pull the trigger, why because maybe you are wrong. Only to watch the price fall in a heap over the next month!!
Well ... this type of behaviour is very basic knowledge and well documented in numerous studies - although I cant give you a specific citation. People prefer to follow the leader rather than lead and tend to accept any arbitrary branding of leadership, regardless of the source, as authoratative. ..And yes, hawking is good, but many of his ideas are met with skepticism amongst those that can decipher his papers ..... At some point people need to take some informattion on faith - you cant be an expert on everything. However, the competing negative factor in todays modern societies is the problem of infformation overload. So much information (most of it useless) is presented from many channels and people just put most of it into the "junk" category unless the have accepted a particular channel as authoritative.