Curriculum·R408 The Professional Operating System·about 32 min
Tilt
By the end of this lesson you can
- →Define tilt as a measurable state rather than a feeling
- →Compute the fraction of trades in that state at which a working system stops clearing costs
- →Tag your own record so the state is detectable after the fact
- →Install the two controls that operate without requiring you to notice
Senior · enrolled learners
This lesson opens with Trading Is Hazardous to Your Wealth, published 2000.
- What happened
- Brad Barber and Terrance Odean examined the accounts of 66,465 households at a large US discount broker over 1991 to 1996. The average household turned over about 75 percent of its stock portfolio each year and earned an annual return of 16.4 percent against a market return of 17.9 percent, underperforming by about 1.5 percentage points. Households in the most active group earned 11.4 percent, underperforming by about 6.5 percentage points. The authors traced the shortfall primarily to transaction costs and attributed the elevated trade counts to overconfidence, noting the interaction with the disposition effect by which investors realize gains readily and hold losses.
- The decision point
- Nothing here required a crash, a bad market or a wrong opinion. The average household picked stocks well enough to be close to the market and gave the difference back through activity, and the most active group gave back four times as much. Tilt is usually described as an emotional state and the record shows it as a rate: trades per period rising while the average outcome per trade falls. Both halves of that are countable, which is the only reason anything can be done about it.
What you will be able to answer
- →What is tilt, measurably?
- →At what share does a system stop clearing costs?
- →How do you detect it afterwards?
- →What are the two controls?
Orientation and Year One are open: anyone can read them without an account. From Year Two onward the lessons are for enrolled learners, because progress through the later years only means anything if it is tracked against a record.
It is free. We do not sell the list and there is nothing to buy at the end of it.
Sources and review
- https://faculty.haas.berkeley.edu/odean/papers%20current%20versions/individual_investor_performance_final.pdf
- https://onlinelibrary.wiley.com/doi/abs/10.1111/0022-1082.00226
- https://papers.ssrn.com/sol3/papers.cfm?abstract_id=219228
- https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3423101
Confidence high·Volatility low·Reviewed 2026-08-07·Owner unassigned
Contested
The Barber and Odean study covers US retail equity accounts in the 1990s, when commissions were far higher than they are now. Per R404-05 the visible commission has largely moved into the fill rather than disappearing, so the mechanism survives while the magnitude should not be assumed to. The relationship between turnover and underperformance has been reproduced in several later datasets including the Brazilian study in this course's autopsy.
The blended expectancy arithmetic in part two uses stated inputs of plus 0.6R clean, minus 0.3R in the tilt state, and the 0.245R break-even derived in R404-05. These are illustrative and the threshold moves with your own figures. The method is the transferable part.
F106-02 owns the psychology of social engineering. R403-06 owns circuit breakers. This lesson owns the specific behavioral state that follows a loss and how to detect it in a record. Keep the splits.