“Kuleshov edited together a short film in which a shot of the expressionless face of Tsarist matinee idol Ivan Mosjoukine was alternated with various other shots (a plate of soup, a girl in a coffin, a woman on a divan). The film was shown to an audience who believed that the expression on Mosjoukine’s face was different each time he appeared, depending on whether he was “looking at” the plate of soup, the girl in the coffin, or the woman on the divan, showing an expression of hunger, grief or desire, respectively.
“The footage of Mosjoukine was actually the same shot each time. Vsevolod Pudovkin (who later claimed to have been the co-creator of the experiment) described in 1929 how the audience “raved about the acting… the heavy pensiveness of his mood over the forgotten soup, were touched and moved by the deep sorrow with which he looked on the dead child, and noted the lust with which he observed the woman. But we knew that in all three cases the face was exactly the same.”
“Kuleshov used the experiment to indicate the usefulness and effectiveness of film editing. The implication is that viewers brought their own emotional reactions to this sequence of images, and then moreover attributed those reactions to the actor, investing his impassive face with their own feelings. Kuleshov believed this, along with montage, had to be the basis of cinema as an independent art form.
“The effect has also been studied by psychologists, and is well-known among modern filmmakers…”
People see what they want to see. Their personal emotions, desires, interpretations and biases are easily read into neutral situations. The Kuleshov effect amply demonstrates this.
If this is true in cinema, how much more does it hold for trading and investing (where ego and money are at stake)?
Chart-based traders have clear exposure to the Kuleshov effect. The less clear and defined one’s criteria for an attractive price action pattern, the easier it becomes to “read in” a biased interpretation or desired state – like reading non-existent intention or emotion into an expressionless actor’s face.
Fundamental investors, of course, can fall prey to the Kuleshov effect too. It is no great feat to interpret a set of fundamental data along personally attractive lines. (How many times have you heard “this stock is a great value” when it is a mediocre opportunity at best?)
The Kuleshov effect explains in part why markets are so sentiment driven, and why bull markets shrug off bad news (while bear markets shrug off good). To the extent that data patterns (both technical and fundamental) are a Rorschach inkblot, they let us see what we choose to see.
How do you guard against the Kuleshov effect in your trading? Do you take steps to be as objective as possible in your decision-making framework, neutralizing hidden interpretive bias via clear-cut standards… or do you simply “go with your gut” and let subjective whims dominate?
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