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Posted By Barry Ritholtz On June 15, 2005 @ 10:01 pm In Investing | Comments Disabled
Interesting study by way of Discover  magazine: The Human capacity to juggle discrete data points tops out at 4.
This is significant for traders, who must digest info on the fly, as well as investors:
"Surgeons, air traffic controllers, waitresses, and bus drivers—or anyone in a high-stress job—take in a steady flow of information that needs to be processed on the spot. But how much is too much? Cognitive scientists in Australia have concluded that humans can juggle four “chunks” of information at any given instant. After that, they become confused. Their next move is no more reasoned than flipping a coin.
Graeme Halford of the University of Queensland and his team presented bar graphs with information about cakes, cars, or clothing to students and academics and asked them questions. In one case, a graph showed that people generally prefer chocolate cake to carrot cake but that the degree of their preference changed when variables like icing or frozen or fat-free cake were introduced. When juggling four pieces of information, the subjects were consistently able to answer the questions correctly. With five variables or more, they could not.
What makes the experiment innovative, Halford says, is the graphs were presented in such a way that subjects could not consolidate data—what psychologists call chunking. Understanding these limits of human cognition can improve efficiency—and save lives. Halford hopes his findings will help in the design of high-stress work environments. “I think in the modern world, most jobs have a lot of complexity,” he says, “and no one knows how to deal with that complexity.”
Now you know: 4.
Brains Study Brains: Juggling Info 
DISCOVER Vol. 26 No. 07 | July 2005 | Mind & Brain
How Many Variables Can Humans Process?  (PDF)
Graeme S. Halford et al.
Psychological Science, Vol. 16, No. 1, pages 70–76
Analysis of Complexity in Cognitive Tasks  (PPT)
Keynote Address to the 35th Annual Conference of the Australian Psychological Society, Canberra, October 3-7, 2000
Article printed from The Big Picture: http://www.ritholtz.com/blog
URL to article: http://www.ritholtz.com/blog/2005/06/juggling-info/
URLs in this post:
 Discover: http://www.discover.com/issues/jul-05/rd/brains-study-brains/
 How Many Variables Can Humans Process?: http://www2.psych.cornell.edu:16080/cutting/courses/halford.pdf
 Analysis of Complexity in Cognitive Tasks: http://www2.psy.uq.edu.au/~coglab/papers/apskeynote/
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