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Card #c1279IR // #c1279Synthesis

"Younger children, or those without a fully developed Theory of Mind, will say that James will say: “pencils,” because they are unable to separate their own knowledge from someone else’s perspective." "Adults in financial markets often operate like the children in the Smarties Test. They think that everyone sees the world the way they do."

— In our words · Source: Trade Outside the Box (Brent Donnelly)

[Use when]

You're sure the other side must see what you see.

[Why it matters]

A child who has just seen pencils in the Smarties tube assumes a friend will know too. Donnelly sees the same error in traders who can't model what others believe. They keep insisting on their own view while the market moves on everyone else's.

More from Trade Outside the Box

#c1278"Keynes asks us to imagine a newspaper which holds a contest where readers are rewarded for choosing which contestant will be chosen by the…You're right on the merits and need to predict how a crowd, market or committee will actually decide. #c1280"There is a market aphorism that says: Early is the same thing as wrong." "You underperform as you wait for your dream trade to come true…You're about to bet against a trend just because it has gone a long way. #c1281"The money is made by those who can get outside themselves to combine second-order thinking with ultrarational behavior to forecast and…You're relying on being smarter than the competition in a field driven by crowd emotion.

Same situation, different book

#c1360Your investors are business partnersYou're taking money from investors and want to know what to expect from them.From Cancel Me If You Can #c1356Show them the engine, skip the pitchYou have a metric that proves your value better than any presentation.From Cancel Me If You Can #c1322Fill the reservoir of trust before you need itYou'll eventually need a deal with a rival and have no reason yet to talk to them.From Courage Can Save Us #c1277Listen and then thinkYou're preparing what to say in a meeting where you haven't yet heard the other side.From The Oxford Handbook of Modern Diplomacy