Quote for the Week
Hindsight occurs when a surprising event takes place and the surprise is very brief, replaced almost immediately by a need to make sense of it. The individual has learned something from the event. For example, if there were two football teams that you considered equally-matched, and one of them trumps the other 5-0, they are no longer equally strong in your mind. One of them is clearly better than the other. This makes sense of their victory. It also makes it virtually impossible for you to re-construct that, earlier, you thought they were equal.
Now, we think that the team that actually won “had to win.” Why did it have to win? Because it won. It won because it was stronger. How do we know it is stronger? Because it won. This is hindsight. It has a huge effect on our thinking, it has a huge effect on investing behaviour, and it has a very pernicious effect, in that it teaches us something quite wrong about the nature of reality…
So, the pernicious effect of hindsight is that we get the sense, after the fact, that an event was predictable, so we get the sense that the world is predictable. We think the world makes sense, and that exaggeration of the coherence, consistency and predictability of the world means that we deny the real uncertainty with which we are faced in existence. And this denial of uncertainty in turn produces irrational action. — Daniel Kahneman (source)
From the Archives
Last Call
- Don’t Be Stupid – The Better Letter
- Stability Breeds Instability – Investor Amnesia
- What a Book Published in 1912 Teaches Us About Investor Psychology? – Behavioural Investment
- Why Investment Complexity Is Not Your Friend – Morningstar
- Memory and Probability – Verdad
- Equal-Weight = Robustness – Klement on Investing
- David Einhorn: The Long and Short of Investing (podcast) – Invest Like the Best
- What Makes Sam Altman ‘Super Nervous’ About AI – New Yorker
- Elusive ‘Einstein’ Solves a Longstanding Math Problem – NY Times
- How a Ticket from Michael Jordan’s Chicago Bulls Debut Became Priceless – ESPN
