Why Smart People Are Actually Dumb

Surly 

Cognitive biases are very useful to understand. To have a better grounding in why, and, more importantly for traders, how they are important one should have a basic understanding of the dual process model for thinking - the so-called "system 1 and system 2" popularized by Daniel Kahneman. Avoiding the negative effects of cognitive biases involves using system 2 and that takes time, energy (willpower), and specialized knowledge. One thing that most popularizers of Kahneman's work (cited above plus daniel arielly and several others) miss is that Kahneman feels that system 1 (loosely related to "gut-feeling") is often the more important of the two systems. He states in "thinking fast and slow" that system 1 is the hero of the book - this is a point worth understanding.

The challenge for traders is that many of our most intractable faults are generated by our automatic non-conscious (system1). The second part of this is that the shorter the time period for your decisions and the greater the emotionality generated by the risk you take (financial, wrong, failure etc) the harder it is for system 2 to overcome system 1 consistently.

The good news is that your automatic unconscious can be retrained ... and when unconscious competence is achieved it will serve you better. Some books that explore and address these areas.

Strangers to Ourselves: Discovering the Adaptive Unconsciousness
The Mental Game of Poker: Prove Strategies for Improving Tilt Control ....
The Willpower Instinct: How Self Control Works, Why it ....

and perhaps

The Happiness Trap and/or
You are Not Your Brain (or you are not your adaptive unconsciousness really)