Shark Attacks Illustrate an Investing Problem
BySingle or rare events should never be used to draw conclusions about, well, anything.
A mosquito is a much bigger threat. Photographer: Richard Bouhet/AFP/Getty Images
One of the key lessons of behavioral economics is the danger of not examining your own beliefs. Failing to consider the reasons that underlie our decision-making increases the risk of error. Although we can operate in our daily life on autopilot, other situations are not so forgiving. When we put capital at risk, the danger of not understanding what influences our decisions can be monetary losses, career risk or worse.
In this context, let’s consider the aphorism, “the plural of anecdote is not data.” This is the idea that a single example should never be used to extrapolate a broader rule about, well, anything. This applies to stocks, the economy, politics, Brexit — just about any situation where a compelling narrative might influence your views in spite of a dearth of evidence…
Shark Attacks Illustrate an Investing Problem
