Interesting article on decisionmaking

[pb4uski]

https://www.forbes.com/sites/ryanfr...-impacts-your-personal-finances/#30f3f1df3ee5

I'm at a bar with a friend, and we've each had too much to drink. I schedule a car to pick me up via Uber and leave. Unbeknownst to me, my friend decides he's fine to drive himself home despite the six beers we each consumed.

On my drive home, my Uber was sideswiped as we passed through an intersection, leaving me with months of physical therapy.

He drives himself home and parks, slightly crooked, in front of his house.

Who made a better decision upon leaving the bar?

What is Resulting?

I made the better decision and had a worse outcome. He made a poor decision and had a positive outcome. Put another way, he got lucky and I was unlucky.

All around us people confuse the results of a decision to be completely linked to the decision making process that went in. This is the concept of "resulting", or drawing a conclusion on the soundness of a decision based on the outcome, rather than whether there was a sound decision making process that gave you the best chance of a favorable outcome. After reading Annie Duke's "Thinking in Bets", I see this sort of faulty logic everywhere, particularly in personal finance decisions.

In personal finance and investing, resulting is dangerous. Thinking you made a good decision when in reality the odds were stacked against you and you got lucky can gives you a false sense of confidence. Overconfidence leads to more risk-taking. More risk taking increases the odds one of those risks blows up on you. Conversely, you can spend years making what probability tells us is a sound decision, only to end up with nothing to show for it.

[and then it goes on to give a number of examples]....

 

[audreyh1]

Monday morning quarterbacking - a common version. Seems pretty entrenched in humans, hindsight being 20/20 and all. Many folks think since the outcome is so obvious after the fact, it must have been obvious in advance.

 

[candrew]

I'm reminded of how resulting can play out in parenting children as well.

We've witnessed parents who were conscientious and engaged while setting clear expectations and limits for their children only to have those same kids turn delinquent. These same parents end up wondering where they went wrong and too often heap blame upon themselves unnecessarily.

OTH, we've seen parents that take a "what me worry" approach by not setting limits at all, show little interest or concern in the comings and goings of their children and their kids end up doing just swell in spite of their laissez faire. They pat themselves on the back and take credit for their children's successes.

Sh*t happens.

 

[Dawg52]

Interesting article on decisionmaking

I can't decide whether to read the article or not.

 

[Jerry1]

Interesting article on decisionmaking

I can't decide whether to read the article or not.

Well if you read it and something good happens, it will be because you read it. And, if you don’t read it and something good happens it will be because you didn’t read it. Either way, you’ll be fine.

 

[ckelly78z]

Friday, August 7 2012, I made the conscious decision to drive my 2800# Porsche 944, rather than my 7300# diesel F250 4x4 to put out garage sale signs that morning (both of them needed to be moved out of the driveway). If the guy who ran the stop sign doing 70 mph would have hit my truck, rather than my car, he would have gotten 17 broken bones, and 6 months off work learning how to walk again rather than it happening to me.

I was going to be unlucky that day no matter what, but fate made me take the Porsche, not faulty logic.

 

[ERD50]

Friday, August 7 2012, I made the conscious decision to drive my 2800# Porsche 944, rather than my 7300# diesel F250 4x4 to put out garage sale signs that morning (both of them needed to be moved out of the driveway). If the guy who ran the stop sign doing 70 mph would have hit my truck, rather than my car, he would have gotten 17 broken bones, and 6 months off work learning how to walk again rather than it happening to me.

I was going to be unlucky that day no matter what, but fate made me take the Porsche, not faulty logic.

Sorry for this terrible event.

But wouldn't logic state the 7300# to be safer, (which you seem to agree with), so maybe the accident was fate, but the choice of vehicle (and severity of result) wasn't?

-ERD50

 

[audreyh1]

Well if you read it and something good happens, it will be because you read it. And, if you don’t read it and something good happens it will be because you didn’t read it. Either way, you’ll be fine.

Great!

But that’s only the optimistic view, LOL!

 

[marko]

A friend once let his kid drive his brand new (read: "safe") Mercedes. The kid was in an accident.

The old man was thrilled! "See, everyone thought I was crazy letting a 17 year old drive an $80,000 car, but see...he walked away without a scratch"

Someone opined that the kid would've walked away had he been in a Chevy as well, but....
We tend to create our own versions of what might have happened.

 

[mrfeh]

For folks that are truly interested in this subject, there are some really good books on behavioral psychology. Do a search for Richard Thaler and Daniel Kahneman (Thaler is more accessible).

 

[RonBoyd]

One of the most useful reads I have had in a while is "Thinking in Bets: Making Smarter Decisions When You Don't Have All the Facts." https://www.penguinrandomhouse.com/books/552885/thinking-in-bets-by-annie-duke/9780735216372/

It was brought to my attention by this MarketWatch article ("This is why poker players do so well on Wall Street") in January 2018:

https://www.marketwatch.com/story/w...in-common-with-wall-street-traders-2018-01-18

Here is an excellent review:

https://static1.squarespace.com/sta...bcc0ba20cc/1548158469634/Thinking+in+Bets.pdf

 

[Huston55]

A friend once let his kid drive his brand new (read: "safe") Mercedes. The kid was in an accident.

The old man was thrilled! "See, everyone thought I was crazy letting a 17 year old drive [-]an $80,000 car[/-], but see...he walked away without a scratch"

Someone opined that the kid would've walked away had he been in a Chevy as well, but....
We tend to create our own versions of what might have happened.

FIF him.

 

[RonBoyd]

FIF him.

?

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[Huston55]

These two quotes from the article explain my sig line:
100% X 10% > 10% X 100%

“You put all your invested money into Amazon in 1998. You took a huge risk and got lucky.”

“In personal finance and investing, resulting is dangerous. Thinking you made a good decision when in reality the odds were stacked against you and you got lucky can give you a false sense of confidence.”