Apparently when you’re depressed, you’re worse at making accurate predictions.That’s the finding of a recent study conducted at INSEAD — the international business school that’s widely considered to have the best MBA program in the world.
According to Fins, whereas previous research has implied that “depressive people are more liable to predict negative events, while sunnier dispositions lend themselves well to gauging positive scenarios,” recent research that used the Wold Cup soccer tournament as its focus, revealed another scenario.
(The World Cup has characteristics that are similar to the stock market, and making accurate predictions in both spheres have similarities researchers say).
In the study, the researches tested over 1,000 soccer fans for depression. Then, they asked those fans to predict the likely success of various teams in last year’s competition.
Those who tested higher for depression submitted noticeably less accurate guesses… Ironically, the depressed subjects tended to overestimate the likelihood of long-shot results — like North Korea winning the whole thing. Though, they seldom put short odds on the teams they actually liked. The study said the guesses of the morose were “less sensitive to base-rate probabilities.” In other words, they didn’t have as good a grasp on reality.
If similar handicaps apply to trading, the study results could reshape the way companies screen and hire traders.
Which is why that’s the next crew to be tested. The professors who conducted the World Cup experiment are now testing to see if there’s a correlation between performance and a trader’s psychological and emotional state.