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Useful Biases

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https://www.collaborativefund.com/blog/useful-biases/

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Useful Biases
There was a time when psychology was all about helping people get from bad to normal. How do you get depressed people to be OK? How do you make an insane person sane? Psychologist Martin Seligman saw how limiting this was.

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Not all biases are bad

We can become side-tracked if we are too preoccupied with mental errors.
Some biases are underappreciated but can be lifesavers.

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Allergic to nonsense bias

When you are confronted with financial salesmanship, you are able to spot and avoid nonsense. Nonsense can be anything from overconfident projections to accounting gymnastics to fraud. 

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Enjoyment bias

The enjoyment bias states that an inefficient investing strategy that you enjoy will beat an efficient one that feels like work.

The key to a lot of things in finance is maintaining e...

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Reasonable ignorance

This bias is intentionally limiting your diligence to avoid decision paralysis since everything is more complicated if you dig deep enough.

At some point, decisions have to be made, w...

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Historical discounting

There are timeless truths that you can learn from history. But some truths can become outdated. 

Things change, and you should pay the most attention to your modern world. The rec...

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SIMILAR ARTICLES & IDEAS:

Too Much Of A Good Thing

Too Much Of A Good Thing

Good and effective things are helpful at one level but when taken too far, can be destructive.

In 1946, Sir Alexander Fleming, a renowned microbiologist, stated that antibiotics (like p...

Taking The Opposite View

  • In the field of investing, Contrarians take the opposite view, akin to cynicism, and think of the collective mainstream view as a kind of mass delusion.
  • Occasionally, a contrary view is welcome, but if it is done every time, then the good times when one has to simply ride the wave are missed, leading to bitterness.

Balancing Optimism

  • A positive attitude has the power to change our thinking and facilitate good things in our lives. Optimism surely beats pessimism as a worldview, when one has to pick a side.
  • Too much optimism turns into a delusion and eventually complacency. One starts getting out of touch with reality and lives in the mode of denial.

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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.

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Life Is Cyclical

Life can be described in just three words: Up and Down. We mistakenly expect life to be consistently Up.

Life, along with all the natural human processes are cy...

The Ongoing Cycles Surrounding Us

Everywhere around us, whether it's stock markets, the weather, and life in general, we are constantly subjected to ongoing cycles.

  • In Businesses, it helps to know the state of the industry, the number of years in business, product acceptance, and current trends.

  • In careers, we can be aware of our network strength, experience, emerging innovations, and skill relevance.

  • With regards to our energy, we can be aware of how we are feeling, what is our current lifestyle, our food intake, and the current season.

Use Cycles to Make Your Decisions

Understanding that we are in a cycle helps us make better decisions.

As nothing in life is static, with change being the only consistent attribute, we must respect the cyclic nature of everything, and if we are aware where we are in the up and down motion, we can make better decisions.