Even if we do manage to make a decision despite being inundated with information research has found that the more information we use to make these decisions the more we then tend to regret the decision we have made, fearing that we may have forgone too many other options!
In another study in 2006 Iyengar and her colleagues analysed the results of US college students looking for a job. The researchers found that the more information the job seekers had about the job, the company, the pay and the benefits, the less satisfied they became with their final decision. Once in one job, they began to picture what it would have been like to take another job with another company and they began imagining that it would have been a better job.
A key reason for this can be attributed to the limited capacity of our working memories, which can hold up to 7 items of information. Any more must be processed into our long term memory. So, when our brain is inundated and overloaded with information it struggles to work out what to keep and what to throw out – the short term ‘noise’ overwhelms our brain, diminishing the value of the information we are taking in and leading to poorer decision making processes. The brains ability to sort through the information at hand and disregard both repetitious and useless information requires resources and vigilance which are unavailable if it is constantly being bombarded with information. This unrelenting flow of information is also training our brains to respond instantly in order to clear out some space for the new information arriving. In so doing, we begin to sacrifice accuracy for the sake of immediacy.
Once again relating this back to our share trading activities for those without a specific trading plan or trading using the ‘noise’ generated by news services, opinions and other ‘talking heads’, decisions are often made quickly in order to deal with the information currently at hand. These traders are operating with the belief that a quick decision is a good decision simply because their brains are inundated and overloaded with information. Inevitably they suffer from the remorse discussed above once the decision has been made and they then begin agonising over the decision they have made. This can also give rise to short term buying and selling of shares as they constantly chase the next ‘hot’ news source or information. They are not really trading, merely chopping in and out of the market based on a series of short term often irrational decisions. Inevitably, without a plan and with a reliance on news and other information sources for their share trading decisions, they lose their trading capital or reach a point where they can no longer engage the market either financially or psychologically.