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Zealotry may not be a distinct category because it may involve overconfidence, inertia,
complacency, and overcompensation, but it deserves mention because it is so extreme and
disturbingly common. We are all too familiar with zealotry in love, politics, and religion. It
even appears in the supposedly buttoned-down world of finance when a trader or portfolio
manager bets the ranch (either his or someone else's) on one economic scenario. Once the
bet is made, the zealous trader forgets any doubts he may have had before he committed
himself to the position. Not only has he bet far too much, he will not even change his mind
when his scenario fails to unfold and he has experienced losses. He will rejus-tify his original
scenario by somehow distorting or rejecting the contrary data confronting him. Not only will
he refuse to sell out and cut his losses, he will bet more, unless someone stops him.
Another variant of zealotry found on Wall Street is when a risk manager falls in love with
his financial model and forgets about the approximations and simplifying assumptions that it
inevitably depends on. His model seems to work initially, perhaps because he has a very
good model or more likely it is because he happened to launch it in the calm waters before
the rapids around the bend. He is lulled into a false sense of security. He allows risks to
accumulate because his model tells him they are well within the bounds of prudence. Then
the rapids appear. His model did not assume that there would be rapids. Risks that appeared
small now loom very large and it may be too late to take action to bring the risks back to
tolerable levels before big losses have occurred.