A year ago, former Poker world champion, Annie Duke, published a superb book where she warned against the dangers of “resulting” – our habit of seeing the world on the basis of results rather than assessing the underlying process (and the probabilities embedded in the process). For example, if I drive drunk from one end of Mumbai to another and reach my destination safely, it does not mean that driving drunk is a good idea or advisable. It just means that I am lucky. Duke went on to say in the book that we should think of our steps and strategies in life in terms of probabilities and in terms of bets.
In this piece, Tim Harford highlights two issues with Duke’s mode of thinking:
(1) “One quibble is that games have a much more tightly defined spectrum than reality does. Edward Thorpe, a mathematician who achieved considerable success at blackjack and as a hedge fund manager, found that the true risks he faced at the casino were not an unlucky turn of the card but crooked dealers and poisoned coffee. Not for nothing does Nassim Taleb, author of the “Black Swan” warn of the “ludic fallacy” – treating the unknown risks of life as though they were known risks of a game of chance.”
(2) “Some big decisions are by their nature irreversible Each big poker hand is a one-shot proposition that does not offer much scope for experimentation. The same could be said of some investments….”
Harford says that a better way to live in an uncertain world is to use experiments wherein you gradually, gingerly walk across the stream – a step at a time – by gingerly feeling the pebbles underneath your feet. “…other decisions are more experimental. In these cases the choices can be made in stages, with each step designed to reveal some information. From Marvel’s decision to publish the Spiderman comics (that went well) to Google’s launch of the G+ social network (that didn’t) a company can see what works and then either redouble its efforts or abandon the project. For an individual, anything from a new hobby to a career can be treated as an experiment.”
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