5 ms·

I've also heard this topic referred to as "results-oriented thinking," which is generally what you don't want: you shouldn't judge a decision based on its resul

by morley 4y ago

I've also heard this topic referred to as "results-oriented thinking," which is generally what you don't want: you shouldn't judge a decision based on its result, but on the information you had at the time. The key to this idea, which I don't see covered in the blog post, for making future decisions is that you shouldn't let past bad luck affect your future decisions. If you lose a positive EV bet, it shouldn't shy you away from making the same bet again. Some examples off the top of my head about decision-making traps people could make: - Continuing to bet at the roulette wheel to "regain" what you've lost - Not going to a well-rated restaurant again just because you had a random bad experience - Not investing in ETFs after being burned by past downturns - Playing MTG and not burning them out just because they had a counterspell last game

mettamage 4y ago
> Not investing in ETFs after being burned by past downturns Helloooo Japan! ETFs are great, it will never happen to the US economy :) In other words, based on market behavior from multiple countries, it is definitely a possibility that ETFs won't return much in a period of 30 to 40 years.
- suzzer99 4y ago
  And what's your alternative? Cash under the mattress gets killed by inflation. Gold has its runs but usually underperforms. Bonds also get killed in a downturn.
  - mettamage 4y ago
    There might not be an alternative. However, the example is simply wrong (IMO) since it assumes that within a 30 year timeframe you'll have gained 8% on average (adjusted for inflation). If this would be true, thne yes it would be a decision-making trap. I think that's what morley is getting at. I'm arguing it's a tough sell that the S&P 500 works like that. If one would agree that the S&P 500 might not continue to give 8% ROI on average over a 30 year time frame, then one might consider doing something else with their money. For example, maybe it's more fruitful to invest in yourself to upskill even more rather than putting your money into the markets. I don't know I haven't researched it, I myself try to beat the market, it's a fun endeavour. The jury is still out.
    - lexapro 4y ago
      There are ETFs that invest in international stocks. VT for example. That way you're not betting it all on one country.
      - mettamage 4y ago
        That's a good point, betting on the world is a more viable strategy. That is at least, if the world is growing in an economic sense. With that said, since the world population will grow, I'd be willing to make that bet. In this case, I'd say the example holds up.
        whiplash451 4y ago
        The point of investing in an ETF is not exactly to bet that the economy will grow no matter what, but to minimize variance and regret with the money you had at the beginning (i.e. you may end up in the red, but in terms of expectations, your likelihood of being in the red was no worse than the average).
        strix_varius 4y ago
        Exactly - for me, investment is less about "making it big" and "beating the market," and more about, "storing the value of the work I did to earn this $X." Such that, if the "burn rate" for my household today is $60k/yr, and I store $60k in investments, then when I withdraw at some future date $X will still be enough to support my household for a year.
      - pirate787 4y ago
        The revenue of the S & P is 50% global so pay attention that 1) US ETFs already have huge global exposure and 2) many country ETFs have global corporations in them
  - whiplash451 4y ago
    There is no pure financial alternative. But a reasonable alternative (or complement) is to invest some money in projects/investments that will for sure have a worse expectation than ETFs, but simply bring you joy in life or new learnings.
  - deleted 4y ago
    [deleted]
  - DennisP 4y ago
    Diversification across asset classes. Physical cash is terrible but to an investor, "cash" tends to mean something like t-bills, which over the past century have done slightly better than inflation. Gold is horrible if you have too much of it, but it tends to do well in equity crashes, so mixing in a little can be helpful. Bonds also sometimes do well when stocks go down, though I think that's more likely when you start at higher interest rates. Commodities can have 15-year bull markets independent of everything else. An investor in Japan would have done fine if they had a lot of foreign stocks. Etc.
  - crucialfelix 4y ago
    Gold has outperformed stocks this year. https://www.google.com/finance/quote/GLD:NYSEARCA?comparison=NYSEARCA%3ASPY&window=YTD https://www.google.com/finance/quote/GLD:NYSEARCA?comparison... 10 year Treasury outperformed NASDAQ https://www.google.com/finance/quote/GLD:NYSEARCA?window=YTD&comparison=NYSEARCA%3ASPY%2CNYSEARCA%3AILTB%2CNASDAQ%3AQQQ https://www.google.com/finance/quote/GLD:NYSEARCA?window=YTD... That's diversification, even if it just means losing less.
LudwigNagasena 4y ago
Results-oriented thinking is bad, but so is not updating your priors.
- llaolleh 4y ago
  Glad to see a fellow Bayesian in here lol.
lamroger 4y ago
> I've also heard this topic referred to as "results-oriented thinking," which is generally what you don't want: you shouldn't judge a decision based on its result, but on the information you had at the time. Had this happen at work recently and shapes why I was ok with the outcome even though it wasn't what we wanted. I was building an integration and got it working and trying to push to Prod when I realized the integration with the 3rd party required a security audit... Given the information at the time, it was the right thing to build but didn't do deep enough research. Lesson learned.
curun1r 4y ago
Results-oriented thinking is just one of many human cognitive quirks that are often maladapted to the modern world. A major one is how we tend estimate probability. We naturally do that by equating it with how easy it is to imagine or remember it happening. This worked well in a tribal situation where our world was very small...if Grog got attacked by a tiger, there's a good chance that tiger attacks are a serious danger that I should consider. But this breaks down in the face of a global society of billions of people and a media that profits from making people afraid. Rare events get magnified by media attention and feel, to us, like they're incredibly likely. Plane crashes are incredibly rare. Even in a plane as fundamentally broken as the 737 Max was, passengers were safer traveling that way than by car. But since every airplane crash is covered extensively on the news whereas car crashes rarely merit a mention, people's primitive cognitive quirks kick in and they're more afraid of flying. You see it with mass shootings too. Even if you get 1-2 per day in the US, that's still maybe a few hundred people per day who are directly affected. Over the course of a year, that's roughly 70k people out of 330 million, or %0.02 of the population. Which isn't to say that we shouldn't do everything we can to prevent it, but when you hear people saying that they don't feel safe, that's entirely on the media and how it's warping our perception of the danger rather than it being a real threat to our lives. We also saw it with the spate of Asian attacks that became a media favorite. There was a story of Asians in New York starting to contort their lives to avoid becoming victims. But when I looked up the actual statistics, there were 20 such attacks at the time in a city with 1.2 million Asians. Which, again, doesn't mean that we shouldn't be treating each of those attacks as terrible and be doing everything we can to stop them, but when you consider 20 victims out of 1.2 million, that's just not a risk that's worth going to considerable inconvenience to avoid. There was an interesting TED talk many years ago from a guy who specialized in these kinds of cognitive quirks. And he discussed the findings of one particular study that always stuck with me. In it, participants were presented with one of two hypothetical situations. In the first, they were going to the theater to see a movie and they pre-purchased the ticket for $20, and also brought along a $20 bill. When they arrived at the theater, they found that the ticket had gone missing. Almost all participants in the study said they'd turn around and go home rather than using the other $20 to purchase another ticket. In the second case, they were going to the theater to see the same movie, but instead of having pre-purchased a ticket, they were intending to buy one when they got there. But they had, instead, brought two $20 bills with them and managed to lose one on their way to the theater. Almost all participants presented with this scenario chose to use their remaining $20 bill to buy a ticket. Despite the situation being basically identical, when you're presented with both scenarios, we have a cognitive quirk where we don't want to pay for something twice whereas we can rationalize the loss of money that we never spent. But what got to me about that study wasn't the results, but how intuitive both decisions felt to me. I could feel how unpleasant it would be to buy a second ticket and, yet, how easy a decision it would be to buy a ticket for the first time even after losing some of my money. The lesson, for me, was that while I've always thought of myself as a logical person and someone who would always let statistics or other scientific basis guide my thinking, it's still really hard to follow through with that.

by morley 4y ago

mettamage 4y ago

> Not investing in ETFs after being burned by past downturns Helloooo Japan! ETFs are great, it will never happen to the US economy :) In other words, based on market behavior from multiple countries, it is definitely a possibility that ETFs won't return much in a period of 30 to 40 years.

suzzer99 4y ago
And what's your alternative? Cash under the mattress gets killed by inflation. Gold has its runs but usually underperforms. Bonds also get killed in a downturn.
- mettamage 4y ago
  There might not be an alternative. However, the example is simply wrong (IMO) since it assumes that within a 30 year timeframe you'll have gained 8% on average (adjusted for inflation). If this would be true, thne yes it would be a decision-making trap. I think that's what morley is getting at. I'm arguing it's a tough sell that the S&P 500 works like that. If one would agree that the S&P 500 might not continue to give 8% ROI on average over a 30 year time frame, then one might consider doing something else with their money. For example, maybe it's more fruitful to invest in yourself to upskill even more rather than putting your money into the markets. I don't know I haven't researched it, I myself try to beat the market, it's a fun endeavour. The jury is still out.
  - lexapro 4y ago
    There are ETFs that invest in international stocks. VT for example. That way you're not betting it all on one country.
    - mettamage 4y ago
      That's a good point, betting on the world is a more viable strategy. That is at least, if the world is growing in an economic sense. With that said, since the world population will grow, I'd be willing to make that bet. In this case, I'd say the example holds up.
      - whiplash451 4y ago
        The point of investing in an ETF is not exactly to bet that the economy will grow no matter what, but to minimize variance and regret with the money you had at the beginning (i.e. you may end up in the red, but in terms of expectations, your likelihood of being in the red was no worse than the average).
        strix_varius 4y ago
        Exactly - for me, investment is less about "making it big" and "beating the market," and more about, "storing the value of the work I did to earn this $X." Such that, if the "burn rate" for my household today is $60k/yr, and I store $60k in investments, then when I withdraw at some future date $X will still be enough to support my household for a year.
    - pirate787 4y ago
      The revenue of the S & P is 50% global so pay attention that 1) US ETFs already have huge global exposure and 2) many country ETFs have global corporations in them
- whiplash451 4y ago
  There is no pure financial alternative. But a reasonable alternative (or complement) is to invest some money in projects/investments that will for sure have a worse expectation than ETFs, but simply bring you joy in life or new learnings.
- deleted 4y ago
  [deleted]
- DennisP 4y ago
  Diversification across asset classes. Physical cash is terrible but to an investor, "cash" tends to mean something like t-bills, which over the past century have done slightly better than inflation. Gold is horrible if you have too much of it, but it tends to do well in equity crashes, so mixing in a little can be helpful. Bonds also sometimes do well when stocks go down, though I think that's more likely when you start at higher interest rates. Commodities can have 15-year bull markets independent of everything else. An investor in Japan would have done fine if they had a lot of foreign stocks. Etc.
- crucialfelix 4y ago
  Gold has outperformed stocks this year. https://www.google.com/finance/quote/GLD:NYSEARCA?comparison=NYSEARCA%3ASPY&window=YTD https://www.google.com/finance/quote/GLD:NYSEARCA?comparison... 10 year Treasury outperformed NASDAQ https://www.google.com/finance/quote/GLD:NYSEARCA?window=YTD&comparison=NYSEARCA%3ASPY%2CNYSEARCA%3AILTB%2CNASDAQ%3AQQQ https://www.google.com/finance/quote/GLD:NYSEARCA?window=YTD... That's diversification, even if it just means losing less.

LudwigNagasena 4y ago

Results-oriented thinking is bad, but so is not updating your priors.

llaolleh 4y ago
Glad to see a fellow Bayesian in here lol.

lamroger 4y ago

> I've also heard this topic referred to as "results-oriented thinking," which is generally what you don't want: you shouldn't judge a decision based on its result, but on the information you had at the time. Had this happen at work recently and shapes why I was ok with the outcome even though it wasn't what we wanted. I was building an integration and got it working and trying to push to Prod when I realized the integration with the 3rd party required a security audit... Given the information at the time, it was the right thing to build but didn't do deep enough research. Lesson learned.

curun1r 4y ago

Results-oriented thinking is just one of many human cognitive quirks that are often maladapted to the modern world. A major one is how we tend estimate probability. We naturally do that by equating it with how easy it is to imagine or remember it happening. This worked well in a tribal situation where our world was very small...if Grog got attacked by a tiger, there's a good chance that tiger attacks are a serious danger that I should consider. But this breaks down in the face of a global society of billions of people and a media that profits from making people afraid. Rare events get magnified by media attention and feel, to us, like they're incredibly likely. Plane crashes are incredibly rare. Even in a plane as fundamentally broken as the 737 Max was, passengers were safer traveling that way than by car. But since every airplane crash is covered extensively on the news whereas car crashes rarely merit a mention, people's primitive cognitive quirks kick in and they're more afraid of flying. You see it with mass shootings too. Even if you get 1-2 per day in the US, that's still maybe a few hundred people per day who are directly affected. Over the course of a year, that's roughly 70k people out of 330 million, or %0.02 of the population. Which isn't to say that we shouldn't do everything we can to prevent it, but when you hear people saying that they don't feel safe, that's entirely on the media and how it's warping our perception of the danger rather than it being a real threat to our lives. We also saw it with the spate of Asian attacks that became a media favorite. There was a story of Asians in New York starting to contort their lives to avoid becoming victims. But when I looked up the actual statistics, there were 20 such attacks at the time in a city with 1.2 million Asians. Which, again, doesn't mean that we shouldn't be treating each of those attacks as terrible and be doing everything we can to stop them, but when you consider 20 victims out of 1.2 million, that's just not a risk that's worth going to considerable inconvenience to avoid. There was an interesting TED talk many years ago from a guy who specialized in these kinds of cognitive quirks. And he discussed the findings of one particular study that always stuck with me. In it, participants were presented with one of two hypothetical situations. In the first, they were going to the theater to see a movie and they pre-purchased the ticket for $20, and also brought along a $20 bill. When they arrived at the theater, they found that the ticket had gone missing. Almost all participants in the study said they'd turn around and go home rather than using the other $20 to purchase another ticket. In the second case, they were going to the theater to see the same movie, but instead of having pre-purchased a ticket, they were intending to buy one when they got there. But they had, instead, brought two $20 bills with them and managed to lose one on their way to the theater. Almost all participants presented with this scenario chose to use their remaining $20 bill to buy a ticket. Despite the situation being basically identical, when you're presented with both scenarios, we have a cognitive quirk where we don't want to pay for something twice whereas we can rationalize the loss of money that we never spent. But what got to me about that study wasn't the results, but how intuitive both decisions felt to me. I could feel how unpleasant it would be to buy a second ticket and, yet, how easy a decision it would be to buy a ticket for the first time even after losing some of my money. The lesson, for me, was that while I've always thought of myself as a logical person and someone who would always let statistics or other scientific basis guide my thinking, it's still really hard to follow through with that.