I want to play a game with you; it is a very simple game. It involves this coin and one single toss… if I flip this coin and it lands on Tails, you lose $100, you will take a hundred dollar bill out of your wallet, you hand it to me, and it’s gone forever… But, if it lands on Heads, you win $120, so, the math is in your favor.
The “Expected Value” of this gamble is positive.
If you played this game a million times, you would statistically become rich, so, the question is… Do you want to play?
If you are like 90% of human beings, your gut reaction, the immediate, visceral feeling in your stomach said “No”.
You looked at the $120 gain, and you looked at the $100 loss, and your brain whispered: “It’s not worth it”.
But why?
Mathematically, that makes no sense, $120 is objectively more than $100. A rational computer would take that bet every single millisecond until the heat death of the universe… but, you are not a computer. You are a biological machine built on 200,000-year-old software. And in that software, there is a line of code, a specific, hard-wired bug, that prevents you from seeing reality.
This bug is the reason you sell your winning trades too early.
It is the reason you hold onto your losing positions until they go to zero.
It is the reason that, despite how long you have been in the market and your complex strategies, you keep sabotaging your own wealth.
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