Tuesday, June 1, 2010

The channel of happiness

In Creativity Unlimited: Thinking Inside the Box for Business Innovation (Wiley, 2008) Micael Dahlén reacquaints us with the work of Mihály Csíkszentmihályi and his thesis that people are happy when they stretch their creative capacity, avoiding the pitfalls of stress and boredom.

If they set tasks for themselves for which they do not possess the requisite skills they’ll be stressed; if the tasks are too easy in relation to their skills they’ll be bored. “The area between the parallels represents happiness. As we can tell from the model, happiness arises when challenges and skills are roughly at the same level, but they can never be at exactly the same level, because as soon as you have learned to meet a challenge, two things occur: (1) the challenge is no longer as great (the arrow points downwards in the model); and (2) your skill has increased (the arrow in the model moves to the right). If you do not accept new and greater challenges, then boredom is the result.” (p. 44)

Staying inside the happiness channel is tough for the trader. Initially his skills are not up to the task, so he is stressed. Eventually his skills more or less match the task at hand, and he becomes bored. Yes, we’ve all read that trading should be boring, but who really wants to be bored all day long? So the trader has to keep defining new challenges for himself. Perhaps it’s to increase size, perhaps it’s to fine tune execution skills, perhaps it’s to develop a new strategy. The list could go on and on.

The fact is that we’re never as good as we could be. Moreover, since the markets are ever changing, we should realize that just about the time we start being really bored we’re likely to get kicked in the gut. If we want to continue to be profitable (and happy) we have to keep our creative juices flowing.

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