From Benjamin Graham's The Intelligent Investor:
"No matter how careful you are, the one risk no investor can ever eliminate is the risk of being wrong. Only by insisting on what Graham called the "margin of safety" -- never overpaying, no matter how exciting an investment seems to be -- can you minimize your odds of error."
My introduction to psychology came in middle school, when I learned about the the classic case of Pavlov's dog(s).
We all know how this goes. Here's my horrible rendition.
Dr. Pavlov rings a bell; his dogs come running over to see what's up; Doc says, "Here's some delicious food. That's what's up;" dogs eat and are happy.
This sequence plays over and over until the dogs begin to salivate whenever Pavlov rings the bell (even if he has no food to present). They have been conditioned to expect food, so their unconscious reaction is to salivate in anticipation.
Classical conditioning doesn't happen to just dogs; it happens to us, too. And the most profound ways in which it happens to us are really tough to detect. It's not as easy or obvious as a bell and a slab of meat.
The most dangerous conditioning mechanism I see is what's been called the Tyranny of Experts (popularized by William Easterly). It's the tendency for those with the most expansive domain knowledge to be most prone to making large, egregious errors.
From their humble novice beginnings to their slow climb to mastery, these "experts" have Pavlovian food dangled in front of them with every bell ring. These rings of the bell come in the form of awards, titles, postings, honorary degrees, etc.
Over time, experts often become conditioned to believe that their success is a sign that they have an unassailable world view. Unless if they are very careful, their world view calcifies with every additional "bell ring." These experts think they hold all the answers, but in reality, they hold many salient answers that apply in a particular context.
Once that context shifts to something they don't understand, the house of cards collapses. It collapses because they couldn't imagine that they could be wrong.
Benjamin Graham and Warren Buffet talk about this at length when it comes to investing. Traders on an extended hot streak undervalue the possibility that they're missing important information. Their risk appetite rises, along with their belief that they are right.
The thing is, it's really easy to succumb to this form of conditioning.
Maybe the best way to avoid this in our daily lives is to constantly seek out things that prove a piece of our world view to be wrong. By actively searching for these things, we humble ourselves away from believing we actually know anything at all.
Relevant words from Shunryu Suzuki, author of Zen Mind, Beginner's Mind:
“In the beginner’s mind there are many possibilities, but in the expert’s there are few."