To hear an audio spoken word version of this post, click here.
I am endlessly fascinated by the decision making process we all inherited as human beings. Our wetware evolved to serve a very specific process — to keep us alive on the savannah long enough to procreate and pass our genes down to our progeny.
We keep learning that much of the process by which we exercise judgement and make decision is, shall we say, sub-optimal for the modern world.
Nowhere is this more true than in the capital markets. Thanks to the work of psychologists and behavioral economists, we keep been identifying all sorts of way this manifests itself. If you are reading this blog post, then you very likely are already familiar with the work of Kahneman & Tversky, Robert Shiller, Richard Thaler, Robert Cialdini, Tom Gilovich, et. al.
Over the past few years, I have become increasingly interested in the work of David Dunning. Specifically, his research on “metacognition” — the ability to self-evaluate our competency on a specific skill set — as a separate skill that improves as our expertise in the underlying skills improve.
For those of us who work in the financial services industry, Dunning Kruger effect is an occupational hazard. As we have seen recently, it is all too easy to get blindsided by something that in hindsight was obvious: Don’t short <$10 stocks; don’t trade with an undercapitalized brokerage firm, etc. Those are DKE mistakes, and some sophistication should have helped to avoid making obvious errors.
Consider the following questions:
-What area should we have an expertise in, but don’t? (And are we aware of our own lack of expertise in these areas?)
-What do we think we know or understand but in actuality do not?
-What we are wholly unaware of, but should know about?
-What are the unknown unknowns — things collectively none of us could have anticipated?
As someone who has spent most of his life more or less oblivious to oh so many things (I don’t read social cues, can’t remember names, am wholly lacking in self-awareness, etc.) I find the above video to be one of the most amazing things I have ever seen. It is utterly fascinating to me, and because of my own tendencies towards being oblivious, I find it more than a little horrifying. Give it a quick two minutes view.
Here’s the explainer from the BBC:
“Pumping her arms back and forth, fitness instructor Khing Hnin Wai dances for the camera, performing ordinary exercises on an extraordinary day in Myanmar. At first glance, the video appears to show a routine dance workout. But in the background, a convoy of armoured cars can be seen streaming by, suggesting all is not as it seems. Ms Khing, an aerobics teacher, posted her exercise video to Facebook on Monday morning.”
Aerobics juxtaposed against the coup in Myanmar is what makes the video fascinating. Even the music is perfect. What makes it so horrifying is simply the thought as to how often I have engaged in some act or commentary or any other behavior where I was every bit as clueless as to what was going on above.
This video should strike self-examination and fear into anyone who ever thinks they have this market figured out. Humility should be our default position.
Question: What convoy of armored SUVs is behind my field of vision that I am completely oblivious to? What is your blind spot?
Counter Party Risk (January 29, 2021)
MIB: Psychologists & Behavioral Economists (September 20, 2019)
Tesla Infinity Call Gamma Squeeze. (Reddit, July 2, 2020)