“Reality is merely an illusion, albeit a very persistent one.” -Albert Einstein
One of my favorite topics is the battle between fact and fiction, perception and reality, truth and spin.
You may have noticed it’s a well I go to frequently, a rich vein to be mined. I do that because it is the single most important issue in every aspect of all human endeavors. Personal relationships, investing decisions, public policy, business judgment, one’s self-image, foreign policy, and of course, how we vote are all affected by our own subjective perceptions, including those that deviate far from objective reality.
Look no further than the coverage of the latest news to see the various bubbles that trap different subjective beliefs. Can both sides be right? If not, than 10s of millions of people on one side or the other are deeply wrong about an important issue they hold dear. What does that say about us a species?
Let’s get recursive a moment: Subjective error and fictional beliefs are not an error to be solved, but a reality that must be both acknowledged and worked around. Better than merely lamenting this issue, it is helpful to find solutions that compensate for this. Much of what we do in my shop involves developing ways that prevent people from derailing themselves due to their very human and natural tendencies.
Here is a fun thought experiment, in a few deceptively simple questions:
What is it that you believe that would surprise you if it were not true?
How much of your thought system is provisional, and subject to change?
What do you believe that you are 100% positive about?
How much of what you know is based on probabilities?
How often do you admit error, and reverse yourself?
How you answer those questions might be very telling about what sort of investor you are — how how successful you have been.
The cognitive errors and behavioral biases we see in all investors are merely one aspect of this realm, albeit one with a large, expensive price tag attached. That’s why it gets so much attention. But other aspects of our daily life are similarly impacted by what we choose to believe in.
I would hazard the following guess: At least some of the things you are 100% sure of are incorrect. And, you would be surprised if someone showed that to you . . .
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