The Allure of the "Near-Miss"
In a volatile stock market, it’s tempting to try to gauge daily dips and bumps to make some fast money. And if at first you don’t succeed, you might think practice makes perfect, especially if you narrowly miss an opportunity for short-term gain. But before you place a buy order, you’d do well to read a new study* about the addictive rush of the “near-miss.”
Researchers at the Behavioral and Clinical Neuroscience Institute of the Department of Experimental Psychology at University of Cambridge scanned the brains of 15 people as they played a computer version of a slot machine. A win, which rewarded players with 50 pence, caused their brains’ pleasure centers to light up, as you might expect. But a near-miss (in which a matching symbol was visibly just one spot away from the payline) resulted in the same kind of brain activity as a win, causing the player to want to spin the reels again so they could re-experience the rush.
Casinos have long known about the allure of the near-miss without having had to fund a study. They’ve made good use of it, too. Games like roulette and slots give gamblers a clear view of how close they were to winning after each round of play. Years ago, I watched my father-in-law play a slot machine in Las Vegas. Whenever the symbols came close to matching, he’d get excited and say, “Look! They’re lining up!” and he’d pump another handful of dollar coins into the machine.
The takeaway from this study? Dr. Luke Clark, who led the experiment, says “On games where there is some skill involved, like target practice, it makes sense to pay attention to near-misses. However, on gambling games where the wins are random, like slot machines or roulette, near-misses do not signal your future success.”
The same thing could be said for trying to predict which direction the stock market will move in a day or a week. Anyone who tells you they know that a company’s share price will be up or down in that short amount of time is about as reliable as a racetrack tout. Smart investors stay in for the long haul, where knowledge and patience can make a difference, and near-misses can be used to fine tune their tactics.
In what areas of your life have you made use of a near-miss for course correction? Conversely, when has a near-miss led you down the wrong path? Share your stories in the comments.
*The results of this study, which is titled 'Gambling Near-Misses Enhance Motivation to Gamble and Recruit Win-Related Brain Circuitry' was published in the 12 February 2009 edition of Neuron.
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