Cognitive Trap!

Memory Vs Experience

I was watching recently concluded #ChessWorldcup and Vishy Anand while doing his commentary brought up an Interesting topic.

He said,

While Vladimir Fedoseev has had a wonderful tournament, he will not feel well about this tournament.

Vladimir Fedoseev finished 4th in a 206 player Single elimination tournament pocketing $50,000 and qualifying for Chess Grand Prix but he will not feel well about this tournament.


He apparently lost the last 03 games of the tournament. First in the semifinals and then 02 against Magnus Carlsen fighting for 3rd place.

What is the big deal, why am I writing a meaningless statistic from an obscure game!!

The reason why this topic is of paramount importance is that Vishy Anand has brought a topic which has been extensively researched under Human behavior.

Listen to Daniel Kahnman explaining how Humans register experiences.

It is just flawed and yet fascinating how we register and label an incident GOOD or BAD.

In a nutshell, what Mr Kahneman is saying that we label an Overall experience, product, people, company, situation or anything based on our last interaction with it. That is because Experience doesn’t matter, what matters is the memory (story) you create in the end.

All is well that ends well. All is hell that doesn’t

Just think about the ramifications.

If you are in an abusive relationship and your oppressor ends the ordeal with apologizing with tears in his/her eyes, you would continue to be in that painful relationship.

If you’ve had a wonderful trip and on the last day some mishap happened, that will ruin the entire experience and you will label the entire thing as a waste of time.

Break-ups by the very definition happen at the end of a relationship and therefore we see ourselves acting irrational. May be that is the reason the sane advise is to part ways while the going is good, as otherwise if you end on a bad experience, that is the only thing you will remember about it. You will rarely see a divorced auntie talking anything good about her ex.

There is Nothing you can do about it, it happens at a sub-conscious level.

Every Good sportsperson worth his salt knows this and therefore retires at a Peak before the downward spiral starts.

We see a lot of successful fund managers do the same. When the size becomes a constraint to its own growth, they simply return the money to partners to end on a HIGH!!

I feel that Psychedelic trips fall in this category too. According to studies done on magic mushrooms, 2/3rd of people proclaimed this to be the single most profound spiritual experience of their lives. Its not that the trip was all hunky dory, in the middle, they went through hell, saw Satan, got anxious, confused and overwhelmed. But it ended beautifully with the feeling of oneness, love and sheer mindless awareness.

Implications on our finance world are much more fascinating.

All our decisions are taken by “Memory” Experiencing self has zero input on the same. What that means is that as an investor, we are susceptible to narratives.

Apple was a 80 bagger (memory), it had a 80% drawdown (experience)

Mind buy stories, not facts

Currency of our mind is memory (story and narrative) and not experience. The reason is how you register time. Experience happens in the now, there is No perception of time in it. Memory happens in time where you justify and communicate what happened.

Daniel kahneman asks a fascinating puzzle that will bring home the point.

Imagine that for your next vacation, at the end of it, all your photographs will be destroyed and you will be given an amnesic drug so you won’t remember anything.

Now, tell me where would you go! and was that choice different from earlier!

The answer is YES. Choices are different. Urge to create memory (story) overpowers our every decision.

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