The Double-Edged Sword of Models

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I was recently having a sweaty conversation about the construct and use of models while sitting in a sauna with a friend. We were talking about how the aggregate polling forecast turned out so wrong on the 2016 Presidential Election. I took the position that models are important to have (or else we would just be making random guesses) but can be dangerous if you become overconfident in your model(s). Let’s hash this out.

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The US Presidential Election 2016 was the Ultimate Lesson in Confirmation Bias

I’ll admit it right off the bat: out of two pretty piss poor choices for president of the United States, I would have voted for Hillary Clinton. Not because Clinton was some paragon of virtue, honesty, and integrity, but because she was – in my opinion – the lesser of two evils. One candidate was secretive, sly, and carried decades of political baggage that featured many, many skeletons in the closet. The other candidate was an openly racist, misogynistic, megalomaniac who seemed to amplify and provide a voice for the shitty side of humanity. Both had their flaws. My opinion was one had deeper flaws than the other. The greatest takeaway from this election, especially if you were not a Donald Trump supporter, is just how easily so many people got sucked into a circle jerk inside an echo chamber.

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Mental Model: The Definition of Cognitive Dissonance

I recently came across on Twitter one of the most bizarre letters I have ever read. This one letter addressed to Warren Buffett on why this investor is no longer going to be an investor of the company is probably one of the most convoluted and bat-shit insane thing I have read in awhile. I’ll keep it short for you this weekend – just the letter.

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The Fallacy of Romanticizing the Past

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I’m currently reading Jared Diamond’s The World Until Yesterday: What Can We Learn from Traditional Societies on my Kindle to and from work. It has little to do directly with finance, but I often find that there are trickle down effects of knowledge and insight to gain from different disciplines that are very helpful when thinking about finance. It helps you build better mental models to deal with complexity. A passage I read this morning got me thinking about our tendency to warp the past, usually for the better.

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