Normalcy Bias – You Have It

The normalcy bias, or normality bias, refers to a mental state people enter when facing a disaster. It causes people to underestimate both the possibility of a disaster occurring – and its possible effects.

The assumption that is made in the case of the normalcy bias is that since a disaster never has occurred then it never will occur. It also results in the inability of people to cope with a disaster once it occurs. People with a normalcy bias have difficulties reacting to something they have not experienced before.

People also tend to interpret warnings in the most optimistic way possible, seizing on any ambiguities to infer a less serious situation.

I continue to endure the “blind optimism” I am faced with day in day out – as the general masses do their best to bury their heads a bit deeper in the sand.

An aside…..Spain only just squeaked through 2012 by using 90% of its social security fund to buy Spanish debt. The country now has over €200 billion in new debt to issue in 2013. The EU Crisis is still very much in play – just not on your local T.V screen.

If you seriously think this thing is going up “forever” or perhaps just drunk on the “Fed’s Kool-Aid” – Normalcy Bias might be a concern.

6 Responses

  1. ikti February 25, 2013 / 3:52 pm

    My system turned to “risk off” today. I expect stocks to move down with increased volatility. I don’t trade currencies, but failing volatile market seems to push USD higher most of the time.

    • Pot Stock Watch February 25, 2013 / 4:25 pm

      The correlation generally holds true yes.

  2. Nfxtrader February 25, 2013 / 4:15 pm

    Looks like you were spot on with your risk off calls. Did you already take usd longs or waiting?

    • Pot Stock Watch February 25, 2013 / 4:29 pm

      I have not Nfxtrader – short of a continued / daily scalp of some JPY pairs to keep me busy.

      I’m still waiting for a “blow off top” at some point to seriously think of laoding a boat short. Thus far I think we’ve seen the first couple “squiggles” here at the top – suggestive of a turn – but could just as likely see markets up +250 points tomorrow.

      I will lilkely continue to poke around “the short side of risk” here in coming days – but just as likely expect a wild blast higher as things finally top out. I like to “buy on red days” in up trends – and “sell on green days” in downtrends so…..will look for a bit more green.

      I assure you – we won’t miss a thing.

  3. schmederlings February 25, 2013 / 7:12 pm

    just poping in & out…. grinding the stone… little sleep….

    here is what I am looking at several plays-setting up… entry will be key if at all…

    usdcad – short
    audusd – long
    nzdusd – long
    euraud – long

    Cheers Schmed…

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