Pattern Seeking Behaviours

Marilyn Luis Dias

An experiment was conducted once by researchers in the field of psychology to show how primates learn by association. They put a pigeon in a box with two keys and on pressing one of the keys a little reward was released into the box. 

The pigeon tries to figure out what the pattern is to get the reward. When rewards were put in randomly, the pigeon tried to figure out what it was doing just before it got the reward and repeated that particular pattern. Sometimes it was even spinning around twice counter clockwise, once clockwise and peck the key twice.  

“Patternicity - the tendency to find patterns in meaningful and meaningless data.”

— Michael Shemer

Life can be very unpredictable and downright chaotic at times. It isn’t any wonder, therefore, that, our brains tend to organize and establish everything around us into patterns, thus making it easier for us to do things without thinking too much about them. There is a comfort/security to be had in things that are expected and probable. 

However, the problem with this is that when things change and don’t go the way we expect it to, our brains get flustered. Take for example, you are driving on your preferred route from school to home as you pick the kids up. But suddenly you find the road closed by a ‘Work-in-progress’ sign and you have to change your route. This can be quite upsetting and difficult adjusting to.  

Or take another example, you have a keyboard for your computer that you are used to but it suddenly doesn’t work and till it gets repaired you have to work on another key board where the positioning of certain keys are different. This again can be awfully frustrating and may take quite a bit getting used to.

The preferences and the biases our brain forms over the years of our living with varied experiences makes us stuck in our ways. 

In an ever changing world, this can be disastrous, especially in the world of investments, where it may be the difference between having a sufficient nest egg and finding yourself having to work during retirement.

In the years past, when interest rates were high, cost of living not so high and options limited, fixed deposits may have made sense.

And while they certainly have their place in an investor’s portfolio today, they cannot and should not be the only investment a person thinks of, just because they give you the ‘guarantee’ of your capital back.  

The fact is - fixed return instruments cannot beat inflation over the long run or at the very least just marginally beat it. Over the years, while your capital may be assuredly intact, the real purchasing power of your money has most assuredly not. In fact, it has been depleted and the cost of not realizing your important goals like sending your daughter/son to that good college of their choosing is now your sad reality; there are just no options left – all because of self-deceiving notions of what should be and what shouldn’t, of applying patterns to things that may or may not be true. For instance, Fixed Deposits offer guarantees and therefore will definitely help us achieve all our goals.

Equities, another investment option, is the only asset class that adequately beats inflation and tax over the course of time but is often bypassed because of its volatility, which to be fair, irons out over the years. However, investments therein must be made with the help of a professional, certified advisor or after exercising due diligence and research if you decide to go at it alone.

We need to take a step back, throw ourselves into neutral gear and get a bird’s eye view of the investment world(not just the data that supports our biases or preferences) to make prudent decisions.