1.
How to think beyond the data presented to us?
I am always sceptical of people on social media who say, “I told you about XYZ and see it has gone up so much”. Most small investors who don’t track ALL the recommendations of the individual will get fooled by such pronouncements. In this article, the authors give a straightforward depiction of how we tend to get fooled.
People who want to deceive us will go on endlessly about what’s in the top-left box while omitting the others. It’s entirely reasonable to draw conclusions from a small amount of evidence in that top-left box as long as there’s a plausible causal mechanism to explain why it’s virtually certain that the examples in it didn’t get there by chance.
When someone hands us a reason for success, even an empty one, it becomes harder to think about what they’re not telling us—but even more important to do so.
2.
Our brains are formatted to forget uncomfortable facts
We want to be right. We want to believe we were right and things were different than it actually was. Jim O’Shaughnessy in this insightful article talks about this phenomenon.
"The first principle is that you must not fool yourself and you are the easiest person to fool."
— Richard P. Feynman
One reason why it's so hard is that our brains have some funny kinks that exist to give us a ‘kinder and gentler’ view of reality and ourselves than is warranted. One such kink is the foundation of hindsight bias, where our brain rewires our ‘memories’ to make them consistent with current conditions.
Here’s the sneaky part: we genuinely believe that our current ‘memory’ of what we thought in the past is accurate.
Thought of the Week
“We are all at a wonderful ball where the champagne sparkles in every glass and soft laughter falls upon the summer air. We know, by the rules, that at some moment, the Black Horseman will come shattering through the great terrace doors, wreaking vengeance and scattering the survivors.
Those who leave early are saved, but the ball is so splendid no one wants to leave while there is still time, so that everyone keeps asking, ‘What time is it? What time is it?’ But none of the clocks have any hands.”
~ Adam Smith
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