In trading, the importance of understanding one’s cognitive biases is invaluable. Without a objective and personal realisation of what influences our decisions, it is difficult to make money and sustain making money in the long term. Not only is it important to recognise what biases most affect us but it also important to differentiate them from our own instincts.
For example for me, anchoring and survivor ships biases were the ones that most affected me.
People tend to dismiss anchoring bias in trading as part of the price-discovery process of any transaction. When trading complex derivatives or structures, the price-discovery journey can be a bumpy one and sometimes being the first one to propose a price can make a big difference in the forthcoming negotiation.
In particular back in 2011/12, when the whole discussion in the market around discounting was taking place and traders and banks had issues correctly pricing even their internal trades (eonia? sonia? libor3s?). Anchoring the value of a trade or even first-mover advantage could turn out to be a massive benefit and one had to be able to detect the anchoring and be confident in the pricing to react quickly.