The Label Stupidity Loop

“I’m a Democrat… I’m a Trump Supporter… I’m a Value Investor… I’m a Capitalist… I’m a Neo-Keynesian… I’m an Atheist... I'm a Swiftie... I'm a... I’m a… I’m a…”

Humans love labels.

We don them proudly, wearing them like sports jerseys. We proclaim our chosen identity to anybody that’ll listen. We want everyone to know what we stand for… and that we’re on the “right” side.

It’s impossible to know everything, and we hate that fact. People abhor uncertainty.

Labels fix this.

They give us pre-packaged sets of beliefs/heuristics/frameworks for dealing with and understanding the world.

Labels also give us a tribe.

By declaring yourself a Republican, you’re signaling to other Republicans that you’re “one of them”. You’re letting them know that you share the same beliefs and values. You’re part of the team. The same goes for Democrats, Libertarians, and every other label.

Having a tribe is important to us. It gives us a sense of safety and community — two things we’re evolutionary wired to crave.

So adopting labels is great.

They help us operate in a complex world and make it easier to choose the people we want to identify with — our tribe mates.

The only thing is… labels make us stupid.

Really, really stupid.

Because once we don a label, it becomes part of our identity.

And there are few things we hate more than attacks on our identity.

Ideas, evidence, events, or questions that don’t confirm our adopted labels feel like personal attacks.  

Humans will do just about anything to repel these attacks and maintain their belief in their beliefs.

And since no packaged belief set is 100% correct, it means all of us carry belief structures that fall somewhere on the scale between somewhat wrong and very wrong.

We employ mental contortions that would impress the US Olympic gymnast team… all to avoid acknowledging the wrongness of these beliefs.

Psychologists call this, “Identity Protective Cognition”.

Vox described IPC as:

A way of avoiding dissonance and estrangement from valued groups, individuals subconsciously resist factual information that threatens their defining values… What we believe about the facts, tells us who we are… And the most important psychological imperative most of us have in a given day is protecting our idea of who we are, and our relationships with the people we trust and love.

Why does this matter?

Well, if we all carry some number of untrue beliefs, yet hold them with high conviction, it’ll inevitably lead to friction when our packaged beliefs don’t conform to how reality actually is.

It also makes getting at truth (finding out how things really are) much more difficult.

Take politics for example.

All 200 million US registered voters are pretty evenly split amongst Democrats and Republicans.

These political labels have become a big part of our identities. The sense of tribe within each is strong.

Most of us passively adopted these labels.

We may like to think we actively chose them because of their superiority, but that’s generally not the case.

Most of us adopted the political label of the family we were born into, of the friends we grew up with, of the community we live within.

Just like our religion, this belief set was given to us. Just as it was given to those who gave it to us and on and on. So we passively adopt most of our labels and beliefs without any true stress testing.

The problem is that it’s our default condition to value knowing and “feeling right” over actually being right and getting at truth.

We adopt and cling to false beliefs because we’re afraid of accepting that we don’t know, that we don’t have an answer. We don’t want to acknowledge that the world is infinitely complex and uncertain and that maybe the things our identities are built upon are wrong.

So we all live in varying degrees of an illusory reality dominated by cognitive dissonance and kept unaware by pride.

And with the rise of the digital era and the constant algorithmic selected news flow, that’s mathematically curated to cater to our labels and flip our emotional switches, we’re becoming more and more attached to these belief sets.

To manage the information/stimulus overload we more tightly cling to our labels to help manage the uncertainty. And the more we do this, the more our belief sets are likely to drift further from reality, from being true.

So we live in an increasingly vicious “Label Stupidity Loop.”

Where the more large and complex the things we’re supposed to care about become, and the more information we’re inundated with, the more fiercely we defend our packaged belief sets and the more wrong we all become.

Blogger Paul Graham wrote about this phenomenon in a post titled “Keep Your Identity Small.” He concludes the piece with:

If people can’t think clearly about anything that has become part of their identity, then all other things being equal, the best plan is to let as few things into your identity as possible.

He’s saying that the way to align more closely with reality and to end up with better outcomes is to be wary of the labels you adopt. And try to keep these labels to a minimum.

This requires a big shift in the way you interact with the world. You’ll have to transition from a state of false certainty to one of accepted unknowing.

You’ll need to embrace your fallibility and acknowledge that the world is large and that human nature is complex and that no one has all the answers. You need to realize that humans will always operate at a knowledge deficit. Where the amount of things we don’t know will always outweigh the things we do. And even those things we “think” we know, need to be held with suspicion because it’s just as likely that we’re wrong on them too.

In short, be humble and open-minded… about everything.

Now since this is a trading blog about markets and such, here’s how this is relevant to you.

Do you classify yourself as a Value Investor? Technical trader? Macro guy? Elliott Wave Theorist?

Do you believe that your method is the best and the other methods are lacking?

Do you identify with your market approach?

Do you think that there’s nothing to gain by objectively studying and putting to the fire the validity of the other styles?

Is it not the most important thing to find any tool or method that you can logically understand and apply to extract money from the markets?

So why would you care what label it falls under?

I’ve long called myself a Macro trader. But that doesn’t mean that I only take what’s considered typical macro trades or only apply macro tools and thinking.

I say macro because I have to give a response. But really, all macro means to me, is to be unconstrained, not boxed in, capable of using all available and effective means to win. I like the idea of being able to go anywhere and trade anything for whatever compelling reason that makes me think there’s asymmetry.

A trade is a trade is a trade in my book.

And I study all the disciplines that logically make sense to me and which I know others have successfully employed.

These are tools that I get to add to my trading kit.

Value investing? Yeah it works, tons of evidence of it working and lots of successful value only investors out there.

Technical analysis? Of course, PLB is living proof it’s effective… Top-down classical macro? Absolutely… another valuable approach to understand and implement.

If it works I want to study it. I want to study the best and I want to know what they know. I want to dive into it with an open mind and find what makes sense, what doesn’t, and what maybe can be approved upon.

We should seek to imitate Bruce Lee and his approach to martial arts and living. Lee explains:

Each man belongs to a style which claims to possess truth to the exclusion of all other styles. These styles become institutes with their explanations of the “Way,” dissecting and isolating the harmony of firmness and gentleness, establishing rhythmic forms as the particular state of their techniques.

Instead of facing combat in its suchness, then, most systems of martial art accumulate a “fancy mess” that distorts and cramps their practitioners and distracts them from the actual reality of combate, which is simple and direct. Instead of going immediately to the heart of things, flowery forms (organized despair) and artificial techniques are ritualistically practiced to simulate actual combat. Thus, instead of “being” in combat these practitioners are “doing” something “about” combat.

Worse still, super mental power and spiritual this and spiritual that are desperately incorporated until these practitioners drift further and further into mystery and abstraction. All such things are futile attempts to arrest and fix the ever-changing movements in combat and to dissect and analyze them like a corpse.

Set patterns, incapable of adaptability, of pliability, only offer a better cage. Truth is outside of all patterns.

What labels do you wear?

What type of belief cage have you built for yourself?

Are you willing to step outside of all patterns, into uncertainty, in order to move closer to truth?