I strongly recommend an excellent article to you, from the Psy-Fi blog, a regular on my daily reading list. The title of the article is B.F Skinner’s Stock Market Slot Machines: Win Big, Win Rarely, Win Never.
I often refer to B.F Skinner, intermittent variable reinforcement, and how the stock market creates superstitions much like those created in Skinner’s birds.
This article gives a wonderful account of how operant conditioning not only works to keep gamblers feeding coins into slot machines, but also gamblers feeding coins into the stock market.
Slot machines work on the same principle. The machines are programmed to ensure that the operator always wins a fixed proportion of the take so the aim of the supplier is make sure people push as many coins into it as possible, because that maximises revenue. Paying out the winnings as a continual stream of small payments, in turns out, is less good at keeping people sticking money in than the occasional big payment accompanied by flashing lights and noisy sirens. This is variable operant conditioning in operation.
It also does an excellent job of explaining a question I am asked frequently. Say you have some guru promising ridiculously unrealistic performance from an investment. That guru trots out a number of people who claim to have achieved the out-sized returns promised.
Are the people lying? Likely the answer is no. So, if they got the promised returns, why are you unlikely to achieve the same result? And finally, what does Skinner’s stock market slot machine tell us about why so many people will willingly leap into the trap?
Read the entire article for the answers.