I am a staunch advocate of systematic or rule-based strategies and humans excel at pattern recognition, which would seem to give us an advantage in developing these types of strategies. Unfortunately, we might be a little too proficient. We tend to see patters that are not really there. Psychologists have a name for this affliction; they call it pareidolia. It turns out that rats and pigeons do not suffer from pareidolia, which allowed them to beat us handily in a recent decision-making study. This flaw has significant implications for trading.
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