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Most people use the wrong signals to stop and start behaviors, and therefore get the wrong results.

Imagine you’re eating some great cake, and you’ve eaten a single slice and it was excellent. That signal of “this is good” should actually be an signal to stop eating cake, not get another slice. Because the second slice is what causes the feeling of “ooh, that was too much cake”. It’s counter intuitive to stop eating cake when it tastes so good, but that’s where understanding signals comes in.

This applies to many, many aspects of life. Understanding correct signals is critical for taking the right actions that lead to the right results. Another example is stocks. When a stock is doing great is not necessarily a signal to continue holding the stock or buy more stock. It’s usually time to sell the stock. This happens all the time when investors enter a position, the stock soars, they sell, which causes the beginners to say “it’s doing great it must be time to buy”, which is about where the apex is and it starts to fall and they lose money.

Warren Buffett has a great quote about this:
“Be fearful when others are greedy, and be greedy when others are fearful”

It’s a signaling issue. Another example is conversations at a networking event. The time to change conversations is when it’s good, not when you’ve talked to one person the whole night and lost opportunities to connect with anyone else just out of awkwardness etc. The optimal time to say “great talking to you, let me catch up with a couple more friends”.