Why We're Blind to Probability · Collaborative Fund - Deepstash

deepstash

Beta

deepstash

Beta

Deepstash brings you key ideas from the most inspiring articles like this one:

Read more efficiently

Save what inspires you

Remember anything

Why We're Blind to Probability · Collaborative Fund

https://www.collaborativefund.com/blog/why-were-blind-to-probability/

collaborativefund.com

Why We're Blind to Probability · Collaborative Fund

3

Key Ideas

Save all ideas

Probability

Most of us understand probability and the likelihood of certain things to happen, or not happening, but still do not fully believe in it. For us, it’s about right and wrong, black or white.


Example: Nate Silver(a numbers guy) said in 2016 that Hillary Clinton has a 72 percent chance to win. This didn’t mean he was wrong when Clinton lost, but most people believed he was.

30 SAVES

23 READS


VIEW

Black And White

  • The pandemic death toll predictions are probabilities but the newspapers keep them as benchmark numbers which will be held against the experts.
  • In investing, stock predictions that come true are hailed on CNBC, as if those people have some superpower.

39 SAVES

22 READS


Ignoring Probability

Probability gets sidelined because:


  • People want certainty, not accuracy. It’s more appealing to make them feel better(with lies, if required) than to give them cold, hard data.
  • There are not many chances to measure our prediction skills, with sufficient sample sizes taking long to play out.
  • People don’t really understand what odds mean, as their beliefs and preferences of what should happen, takes precedence over probability.

31 SAVES

26 READS


SIMILAR ARTICLES & IDEAS:

Some downsides are unavoidable

Some downsides are unavoidable

Life is a little easier if you expect a certain chunk of it to go wrong no matter how hard you try.

Smart people screw up. Good people have bad days. Nice people lose their temper....

How we think about risk and opportunity

It’s impossible to think about risk and opportunity without a reference point. And ours is at most incomplete (if not totally wrong).

Everything we think about risk and opportunity is shaped by our own specific situation and personal experience. So everybody has a view of risk shaped by narrow experiences but applied to the broad world.

Long-term and short-term thinking

Long-term thinking is difficult to put in action because the long run is a collection of short runs that have to be handled, displayed, and used as information to gauge whether a long-term reward still exists.

Short-term thinking can be the only way you’ll survive long enough to experience long-term results.

one more idea

Cautiously Optimistic

Cautiously Optimistic

Our predictions usually seem to fall towards extremes, either too optimistic or too pessimistic. We underestimate how bad things can be in the short term, and how much better they ...

Optimism Bias

Too much optimism prevents us from accurately predicting and understanding the pain and struggle that is inevitable in the future.

What it does is it reduces our stress and anxiety and provides a ‘playground’ where we can imagine alternative realities which we need to believe in.

Realistic Optimism

A realistically optimistic person knows that though things will happen, things that will be surprising, disappointing or completely out of control.

There are two kinds of historical events to learn from

There are two kinds of historical events to learn from
  • Specific events. Their usefulness is limited to particular events that will not be repeated in the exact same way. What did this person do right, or wrong? What ideas wo...

Calm plants the seeds of crazy

  • Good times often breed complacency and scepticism of warnings. Until 2020, the public assumed pandemics were things of the past. 100 years ago, people had a better understanding of how dangerous an outbreak could be.
  • Carl Jung thought that an excess of something gives rise to its opposite. When there are no recessions, people get confident. Confident people take risks, leading to recessions.

Progress requires optimism and pessimism to coexist

Optimism and pessimism go hand in hand. In finance, we are told to save like a pessimist and invest like an optimist. The short term is full of setbacks, problems, breakages, depressions, pandemics, errors, but if you can stick around long enough, you can experience long-term growth.

The long-run is usually rather good and the short run is normally quite bad. In reconciling the two, we learn how to manage both.