Category: Principles

Back to Basics: Reality, Uncertainty, and Human Stupidity

What causes human misjudgment? Why do supposedly well-informed and intelligent people get things so massively wrong and repeat the same mistakes? 2016 delivered two painful slaps in the face (Brexit and Trump) to political pundits and pop media, and the financial markets served more to those who turned pessimistic on the stock market immediately before or after. From the grandest stage of the political and financial arena to the mundane aspects of everyday life, uncertainty and mistakes are what we have to live with. After all, nobody bats a thousand. As human beings, we are prone to making mistakes in our decisions – or human stupidity as I’d like to ascribe to myself. Even the all-wise Charlie Munger says “my life is a litany of mistakes.” In the very long run, our results in life would be the result of our effort + luck minus the sum of our misjudgments, as at the poker table where “your winning will approach all your opponents’ mistakes, less the sum of your mistakes” (though life is certainly not a zero-sum game).

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