Newsletter: Hacks to better decisions
(Volume 1, Issue 22)
Topic of the week: Hacks to better decisions
Professor Sanjay Bakshi is an Adjunct Professor at Management Development Institute in Gurgaon, India (near New Delhi). His teaching, writing and recent videos are a treasure of wisdom not only on investment topics, but decision-making in general. His recent video below, is a great example where he discusses five hacks to making better investment decisions.
His hacks, however, apply to any decision, and are worth using as a check-list in daily decision making. For example:
Think like a statistician. Consider what the "base rate" is of an observation or outcome before concluding the likelihood of it. The mind plays tricks on you. Base rates ground the mind in reality. (Resource: The Base Rate Book by Michael Mouboussin.)
Healthy skepticism. Ask the simple question, "Is this true?" Avoid jumping to first conclusions. Initial explanations are often incomplete and wrong wrong.
Budget for complexity. Multiple factors are at play, and are obviously not obvious. Therefore start describing explanations with the language: "Part of the reason this is happening is..." Leave open the possibility for other (and perhaps more explanatory) factors.
Think like a scientist. Propose ideas as a hypothesis, allowing you the space to modify your original ideas. Use language like, "My current hypothesis is..." One can have strong opinions. But keeping them loosely held allows you to continuously test the opinions and improve them.
Think like a trader. Exceptional traders don't have aversion to taking losses. Fear of failure or losses hamstring improvement and progress. Evaluate decisions (see hack #1 and #4), accept bad decisions and quickly get out of them. Avoid commitment bias.
Quotes of the week
“It is easier to act yourself into a new way of thinking, than it is to think yourself into a new way of acting.”
"On the other hand, he who controls the senses by the mind and engages his active organs in works of devotion, without attachment, is by far superior."
— Bhagavad Gita, Chapter 3 Verse 7
Three recent articles
1. More innovation comes from Butterflies than Geniuses. Shane Parrish of Farnam Street highlights an excerpt from Joseph Henrick's book The Secret of Our Success that explains how dumb but social Butterflies innovate far more over time than brilliant but recluse Geniuses. Being smart is not enough. It takes social interaction, like coffee shop interactions and vibrant communities, to diffuse great ideas.
2. The Changing World Order is an online series written by Ray Dalio discussing the long-term trends affecting economics, technology, international relations and investments.
3. The prevailing hypothesis is that a Coronavirus vaccine will immediately return the world to normal. Glenn Chan lays out reasons to believe this hypothesis could have weaknesses, particularly because of unknowns of vaccine effectiveness, re-infection, vaccine production and distribution challenges.