Saturday Serendipity
Quote, Mental Model, Interesting find.
Hi.
Reading time: About 4 minutes
Quote
“Don’t aim at success—the more you aim at it and make it a target, the more you are going to miss it. For success, like happiness, cannot be pursued; it must ensue, and it only does so as the unintended side-effect of one’s dedication…In the long run—in the long run, I say!—success will follow you precisely because you had forgotten to think about it.”
— Viktor Frankl
Mental Model
Falsification
This bias is similar to the confirmation or consistency bias.
Sir Karl Popper wrote that the nature of scientific thought is that we could never be sure of anything. The only way to test the validity of any theory was to prove it wrong, a process he labeled falsification. And it turns out we’re quite bad at falsification.
-Farnam Street
Darwin was a huge fan of proving his own theories wrong. It’s something he did on a constant basis to become smarter and avoid confirmation and consistency bias. We could see this in the way he worked.
In any activity where there is research involved it is important to try and prove yourself wrong.
In Paul Tough’s book, How Children Succeed: Grit, Curiosity, and the Hidden Power of Character, he tells the story of an English psychologist Peter Cathcart Wason, who came up with an “ingenious experiment to demonstrate our natural tendency to confirm rather than disprove our own ideas.”
Subjects were told that they would be given a series of three numbers that followed a certain rule known only to the experimenter. Their assignment was to figure out what the rule was, which they could do by offering the experimenter other strings of three numbers and asking him whether or not these new strings met the rule.
The string of numbers the subjects were given was quite simple:
2-4-6
Try it: What’s your first instinct about the rule governing these numbers? And what’s another string you might test with the experimenter in order to find out if your guess is right? If you’re like most people, your first instinct is that the rule is “ascending even numbers” or “numbers increasing by two.” And so you guess something like:
8-10-12
And the experimenter says, “Yes! That string of numbers also meets the rule.” And your confidence rises. To confirm your brilliance, you test one more possibility, just as due diligence, something like:
20-22-24
“Yes!” says the experimenter. Another surge of dopamine. And you proudly make your guess: “The rule is: even numbers, ascending in twos.” “No!” says the experimenter. It turns out that the rule is “any ascending numbers.” So 8-10-12 does fit the rule, it’s true, but so does 1-2-3. Or 4-23-512. The only way to win the game is to guess strings of numbers that would prove your beloved hypothesis wrong—and that is something each of us is constitutionally driven to avoid.
In the study, only 1 in five people was able to guess the correct rule.
— Farnam Street
The reason we fail to falsify is because we tend to like being right. Back to consistency bias. Think of falsification as an antidote to the bias.
In Investing
Investing is very similar to investigations. In my opinion the best processes of investing is like a journalist where you read everything and try to find out small small details about businesses which make them great.
“Act like an investigative journalist. Most business owners leave a trail for you to follow and see how they deal with different situations. Most professional managers would not see this as part of their job, but YOU are part of their 5%.” - Li Lu
So falsification for investors is something which should be of top priority. It is evident that the job of investors is incredibly hard as there are more than 5000 companies in the market. Out of which most businesses are not good in the long term. Opportunities are rare to find, so it becomes very important that you don’t mess up. Errors of commission will be made but need to be minimized as much as possible.
Source: Farnam street
Interesting find
That’s it, Enjoy your weekend!
Thank you for reading,
Samvit.