Atlas of Cognitive Biases #6 · Randomness and probability. The better the story, the less likely it is
What it looks like in trading
the scenario “the Fed cuts rates, the market breaks the high and then goes to X” seems more likely than the breakout alone
elaborate plans in which every step has to work
convincing analyses full of “because”
An example from a session
A five-step scenario in which each step has a 70% chance has a combined probability of only about 17%. Yet the detailed story sounds more convincing than the simple scenario “the market will test the VAH”.
What the research says
Tversky and Kahneman (1983): “Linda” is described as a socially engaged philosophy graduate. Most participants judged “Linda is a bank teller and a feminist” to be more likely than “Linda is a bank teller”. That's logically impossible: a part can't be more probable than the whole.
Judging a combination of several conditions to be more likely than each of them separately, because together they make a coherent story.
How does the conjunction fallacy show up in trading?
Typical signs: the scenario “the Fed cuts rates, the market breaks the high and then goes to X” seems more likely than the breakout alone; elaborate plans in which every step has to work; convincing analyses full of “because”.
Educational content, not psychological advice or an investment recommendation.