Eliezer Yudkowsky has published Cognitive biases potentially affecting judgment of global risks, an excellent explanation of the various psychological errors of judgement human beings commonly commit (like availability bias, hindsight bias, black swan discounting, conjunction fallacy, confirmation bias, anchoring, adjustment and contamination, the affect heuristic, scope neglect, calibration and overconfidence, bystander apathy), including of course, when we are investing. He hopes such errors by decision-makers won't result in the extinction of humanity, noting that the size of the stakes don't affect the quality of people's judgement!
The paper offers no "5 simple steps" regimen for over-coming such errors - it merely states that being aware of the errors is at least a start to committing them less often. There is a danger in trying to avoid all errors - you may be paralyzed with indecision and drive yourself nuts in the process. As General George Patton Jr said, "A good plan executed today is better than a perfect plan executed at some indefinite point in the future." (see Military Quotes)
I found this paper on the Overcoming Bias website, which is devoted to intellectual discourse on aligning belief with reality using "Cognitive psychology, evolutionary psychology, microeconomics, applied statistics, social psychology, probability and decision theory, even a bit of Artificial Intelligence now and then." Good for fun and some learning.
Thursday, 28 August 2008
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