What “Squid Game” Says About Modern Traders
Entertainment and culture have an interesting relationship. As the former has become more and more omnipresent in our lives, it has become harder and harder to establish when one is influencing the other and when it’s the other way around. And whenever a new series comes out that seems to grab the attention of the vast majority (“Tiger King,” “Game of Thrones,” “The Good Place”), it’s hard not to sit back and wonder why.
What part of our culture does that series reflect?
The latest show to achieve “international phenomenon” status is South Korea’s “Squid Game.” Now the most-watched original series on Netflix, it tells the story of 456 cash-strapped players flown to an isolated island where they participate in deadly games for the chance to win the equivalent of $38 million US dollars. The show is violent and — at times — rather absurd. However, it is also very realistic in its depiction of the modern human condition.
It is also an excellent reflection of how modern traders (and modern markets, for that matter), interact with one another. In watching the show, we can get unique and accurate insights into how traders think, act, and respond to different market conditions. For instance, one of the most lauded scenes shows a man covered in bruises playing a game with a well-dressed businessman inside a subway station.
They must throw one colored card at another in an attempt to flip the second card over. If they fail, the loser suffers a slap in the face. After dozens of losses, the bruised man finally wins and can barely contain his excitement. However, the businessman, unwilling to accept a slap, decides to hand over money instead. The player just played the man, not the game. He piqued the businessman’s curiosity, and in the end — despite all his defeats — he got what he wanted.
The Mythos Around “Beginners Luck”
The show is full of these little vignettes. Entertaining? Sure. However, the implications are much more interesting than most of us would be willing to admit. For instance, the man in the subway is a great reflection of modern traders. In most cases, when they first invest in the stock market, they are not only unaware of what game they’re playing, but what the rules of that game even are.
Just as the man in the subway piques the curiosity of the other players through the reward of a slap, the stock market rewards new investors with small amounts of cash. Simultaneously, it regals them with stories of young investors who timed their buys and sells “just right,” resulting in life-changing money despite having virtually no idea of how to play the game.
New investors buy stocks based on random tweets or emails, they buy cryptos based on a friend’s recommendation, and they hold onto those assets with a childlike belief that someday they will make them rich.
This is all made worse by the mythos that surrounds the concept of “beginners luck.” If you’re new to either the stock or crypto market and see the value of one of your assets go up, you may become subject to this phenomenon. That is, you will be experiencing a disproportional frequency of success as compared to experts. It’s not unlike having a Final Four pool at work and watching the non-sports fan win because they like a team’s logo. Their victory is impressive, but it doesn’t make them a college basketball expert.
Beginner’s luck is a direct route to what psychologists call “attribution bias.”
You end up more confident than you should be in your knowledge of the market and your innate trading abilities. This causes you to fail to perform due diligence, ignore statistics, and often fail to diversify your assets. When you lose, you “attribute” the loss to random factors outside your control. When you win, you “attribute” it to your savant-like ability to read the markets. Either way, you always have an excuse.
At one point in “Squid Game,” the players are asked to participate in a children’s game known as “Red Light, Green Light.” It’s simple enough: you move when the light is green. You stop when the light is red. However, in this case, those who fail to stop moving end up being shot.
Despite their shock at the brutality of the game, the surviving players later get to vote on whether they want to keep participating in the contest. Because of their overconfidence and the subsequent attribution bias, they vote “yes.” They know full well that only one of the survivors will go on to win the money, but they remain somehow convinced it will be them.
When money is (quite literally) dangling in front of a group of players, it’s easy for them to convince themselves that the slightest success shows that they’re special — that they are more likely to win than others. You might recognize this is the same type of thinking that leads people to pump coins into slots or play the lottery despite nearly impossible odds of winning. Many modern “investors” are not investing per se, but gambling.
How “Mob Rule” Became Standard Operating Procedure
At another point in the series, a riot breaks out right before the participants are set to play a game of tug of war. The result is that the players are split into two separate groups or factions. Here, you can see an example of “mob psychology,” more commonly known as the “bandwagon effect.” This is when people follow the actions and examples of others when operating in a group.
We see this a lot in young, first-time investors. They do something because others are doing it. Rather than trade using their own strategies, rules, and analysis based on due diligence, they simply go along with what other people in the market are doing. Further complicating this effect is the fact that enough people buying or selling can indeed cause a stock to move one way or another. This is why new investors are so susceptible to pump and dump schemes and panic selling. Not only do they not “know what they own,” they aren’t even aware of the implications of that ownership!
It All Comes Down to Psychology
“Beginners Luck” and “Mob Mentality” are fallacies. They convince us that one thing is true or right when the opposite is just as likely to be correct. This prevents us from making smart investing decisions and, therefore, from making money. Fortunately, unlike in “Squid Game,” the game of finance is not “winner takes all.” And while a red day might sometimes feel like a shot to the heart, it isn’t a “life or death” situation either.
In the end, all traders need to do to overcome these newcomer mistakes is attempt to understand the rules and characteristics of the markets they want to invest in. This means taking the time to perform due diligence on how to play (and win) by developing a unique statistical edge. Ultimately, technical knowledge is far less important to investor success than controlling your emotions, avoiding following the pack, and keeping a little luck from going to your head.
