How did you first get interested in the connection between psychology and trading? My primary research interest after graduate school was how various drugs affect human performance. After
receiving my Ph.D. in psychology, I spent about eight years doing fairly standard psychological research. For
example, I helped standardize the current Field Sobriety Test Battery that police throughout the country are still
using. While I was doing that, I also learned how to lose money trading options. In fact, I lost money so fast and so
consistently that when I finally got out of the market, I had to conclude that the losses had something to do with me.
During that same time period, I enrolled in a class in prosperity at the local Church of Religious Science. One of the
principles taught in that class is that what happens to you reflects your mindset. I had read a lot on the psychology of
trading, and while I considered most of that information to be "folklore," I wanted to test it out. I decided to do so by
developing my Investment Psychology Inventory, a test to measure investment strengths and weaknesses, as a
creative project for that class. No one in the class would take it, so I sent it to R. E. McMaster, the editor of a
newsletter to which I was subscribing. McMaster took it and then offered it to his subscribers. Overall, I received close
to a thousand responses and that really roused my interest in this area as a career.
What did you learn in analyzing the responses to your test? Were there any major surprises? I had several measures of success built into the test, so I could rank the responses according to "success
level." The investment literature suggested ten different areas that might be important. As a result, I designed
questions to measure each of those areas. I did a number of statistical analyses of the data and found a significant
correlation between each area and investment success. In addition, I found that those ten areas could be grouped
into three major clusters, which I label the psychological factor, the management and discipline factor, and the
decision-making factor. Although I've since refined the test, I still use the same three major clusters. In addition, I
still keep the ten original areas, and I've added an extra one—intuition.
