Behavioral finance FAQ / Glossary (Automatic)

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Dates of related message(s) in the Behavioral-Finance group (*):

Year/month, d: developed / discussed, i: incidental

Automaticity, autopilot bias

08/12d + see attention bias, reaction, status quo bias,

habit, heuristic, reflex

Be careful about uncontrolled behaviors that bypass your mind!

Watch that the robot in us that does the chores dos not break too much china!

 

Automaticity defines actions or reactions that are performed

suddenly, unconsciously (or half-consciously) and unintentionally.

usually as the immediate result of:

A reflex (see reflexive) to an external stimulus,

A physical or mental habit (see that word)

Or some inner emotional impulse

Some of those "instant" behavioral phenomena cannot be fully categorized as cognitive or emotional.

This is the case for quasi-physical / mechanical automatisms (*)

and for collective / institutional rites.

(*) Something physical (see neurosciences) takes place when a mental habit takes hold.

Some connections between some neurons under the effect or neurotransmitters or,

electric waves become, once they took place often, like "wired", quite hard to redirect.

Types of automatic behaviors

Different kinds of strings that move the puppet or keep it alive...

Here are the various kinds of automatic behaviors,

* From the most basic ones - on pure autopilot when

conscious thinking is disconnected -

* To those in which cognition or emotion might play a small part

* Not to forget those that are appropriate and those inappropriate.

Let us call the later "reflexive biases".

Now the details:

Simple reflex

This is the most basic automaticity, an unconscious / uncontrolled knee

jerk physical reaction to a stimulus (see reflexive).

Learnt reflex,

* Either based on a previously known similar situation...

* Or on its Pavlovian version, conditioned to respond to a mental bait,

* Found also in its superstitious or ritual versions.

Impulsive emotions bringing instant reactions (see affect heuristic).

Compulsions, as strong damaging reflexes or drives that cannot be resisted.

Habit (see that word):

unconscious - or slightly conscious - good or bad practice

that has been ingrained for a long time.

Addiction: habit that cannot be resisted, with disastrous consequences.

Obsessions as intense recurrent emotions (greed, fear, love, hate...) or

mental quests that like addictions cannot be resisted.

Instinct, intuition whatever those phenomena are,

either innate or acquired through via a long experience in an area of activity.

Many of our decisions, whether conscious or not, and many of our

thoughts, have been influenced by a silent crossing and assembling

of complex data made "in the background" by our neurons

Intuition and sudden imagination, as subconscious / pragmatic neural

analysis of the situation, can bring highly adaptive solutions..

preferably if some sorting is done before applying them, as they

could rest on anchored beliefs more than on innovative approaches

Heuristic. Here are mental shortcuts / quick recipes that are

used routinely and automatically - but rather consciously - to face situations.

There are many kinds of heuristics (described in the related glossary article):

* Either an immediate perception of a situation (availability heuristic...),

* Or a simplified model that might help to understand it

(representativeness heuristic, generalization...),

* Or simple rules used to handle it (recipe, rite...).

Consequences: useful or harmful?

Practical, fast , efficient, ...except when pure blunder.

That automatic / reflexive / instinctive behavior might be based on thorough experience,

and preparation, or be just an immediate improvisation / gut decision.

It might save time and effort in decision making (see that phrase),

It can bring fast solutions in case of emergency, and in some situations

foster good discipline (good habits).

In fact, most of our (ordinary) behaviors are automatic.

That is a luck, if not we would spend our time pondering what to do in every situation,

and even forget how to breathe and wonder what feet to use to start walking.

Even some conscious decisions might be started by unconscious reactions to stimuli

until reasoning takes control.

Also experience and education are a continuous acquisition process during the

whole life and they give knowledge that becomes automatically available when needed.

But it can be (or can become) maladapted, suboptimal or even fully disastrous.

Here automaticity becomes a bias:

the "reflexive bias".

Such counterproductive effects are well known in money and investment matters, in which

they can cause individual suboptimal decisions and general market anomalies.

Automatic responses should not apply:

In complex, fully uncertain and totally new situations.

Also in well-known situations in which automatic "bad" reflexes

proved to give unsatisfactory results.

Here, they are more akin to Pavlovian reflexes or superstitions than to well-thought practices.

Among the specific individual or collective biases that automaticity can produce, let us cite:

For individuals: status quo bias (people of habits do not like changes),

Or on the contrary, hyperactivity (knee-jerk reaction when it should be better to wait),

Those phenomena can be seen for example in investing:

hyperactive traders vs. excessively passive investors when experiencing a loss

For human societies: blind obedience to

* Rules, common conventions, paradigms,

* Dogmas, rites, taboos,

* Herding, trend following

See related articles (status quo bias, hyperactivity, herding, trend following)

(*) To find those messages: reach that Behavioral-Finance group and, once you are there, 1) click "messages", 2) enter your query in "search archives".

Members of the Behavioral Finance Group, please vote on the glossary quality at Behavioral-Finance/polls

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