Forget the 'Dimon principle.' Investors should follow the Feynman principle.

When J.P. Morgan Chase's chief executive, James Dimon, disclosed a $2 billion trading loss during a hastily organized conference call on Thursday, he said: 'This trading may not violate the Volcker rule, but it violates the Dimon principle.'

Mr. Dimon didn't say what the Dimon principle is, and a spokesman for the U.S.'s largest bank by assets didn't respond to requests for comment.

The Feynman principle, however, is simple: 'You must not fool yourself-and you are the easiest person to fool,' as the Nobel Prize-winning physicist Richard Feynman put it.

Asked on April 13 whether J.P. Morgan's trading operation posed significant risks to the bank, Mr. Dimon called it a 'tempest in a teapot.' The bank's chief financial officer insisted the London-based division was merely 'protecting that balance sheet,' adding that J.P. Morgan was 'very comfortable with the positions we have.'

J.P. Morgan's moguls, in letting a complex risk run wild and denying any potential for error until too late, are a reminder one of the biggest dangers in finance is self-deception.

For investors, the bigger the commitment, the more certain they become that they must have been right to make it-and the harder it becomes to let go.

The literal meaning of the word 'invest'-from the Latin vestire, to clothe or dress-is to wrap oneself up in something. Experiments at racetracks and elsewhere have shown that people who bet on an outcome become up to three times more confident that it will occur than people who didn't put up any money.

Not trying to disprove your own beliefs is an especially dangerous deception. In a commencement address he gave to students at the California Institute of Technology in 1974, Mr. Feynman urged his listeners to avoid what he called 'cargo cult' thinking, after Pacific islanders who believed they could make airplanes land, full of food and clothing, by standingalongside makeshift runways, as they had during World War II.

You also can fool yourself by placing too much faith in the findings of supposed experts. Mr. Feynman recounted the story of an influentialformula for measuring the charge of an electron that was devised by the pioneering physicist Robert Millikan. The result was slightly wrong, but it took many researchers years to prove it wrong-since Millikan's successors assumed that he had to be right. They adjusted the value, but not enough; deference made them too timid to believe the evidence of their own eyes.

Quantitative claptrap can have the same effect on investors. Some banks-including J.P. Morgan-use a technique called 'value at risk,' or VAR, to estimate the potential vulnerabilities of their portfolios. VAR is a short-term measure that generally assumes that past levels of risk and relationships among assets will persist, says Donald van Deventer, author of 'Advanced Financial Risk Management' and chairman of Kamakura Corp., a financial-consulting firm in Honolulu. It gives a precise, but incomplete, picture, he says.

So how can investors avoid deceiving themselves?

First of all, remember that 'the riskiest moment is when you are right,' as the economist Peter Bernstein was fond of saying.

You should set, in advance, a threshold of profit at which you must review any holding-say, a 50% gain. At that point, you must seek out the opinions of people who think you are wrong-research from short sellers betting against the stock, for example.

Look at the results of other people and organizations that have tried something similar to the actions you are considering. Unless other people have succeeded, there isn't any objective reason to believe that you will. (J.P. Morgan might have notedthe record of big U.S. banks trying to make money off leveraged portfolios of derivatives is abysmal.)

Monitor yourself for vehemence. If you find yourself tempted to ridicule anyone who tells you are wrong, you probably are wrong. Bertrand Russell warned the less evidence someone has that his ideas are right, 'the more vehemently he asserts that there is no doubt whatsoever that he is exactly right.'

Finally, try the technique that psychologist Gary Klein calls a 'pre-mortem.' Gather people whose views you respect. Ask them all to imagine looking back, a year from now, at the investment you just made-and that it has turned out to be a disaster. Have them list all the possible causes of the failure. That may well help you see how it might have been avoided.

Above all, remember that the smarter you are, the more easily you can fool yourself.