Proof-Read Your Investment Judgments

On the surface, this blog post by Nick Maggiulli appears to focus on the value of proof-reading and double-checking your work. While errors resulting from attention to detail will inevitably call into question the quality of other ideas or research you have produced, the section on the formation of beliefs is immensely important to investment decision making and behavioural biases. Maggiulli references Annie Duke’s explanation of how beliefs are formed from the book “Thinking in Bets,” essentially outlining that only after we have heard something that we believe to be true, do we make a judgment on whether it should be verified. Kathern Schultz puts forward a similar line of thinking in her book “Being Wrong: Adventures in the Margin of Error.” She illustrates that after a baseline belief is established as true (prior to verification), the bar to cognitively adjust said belief is higher than it otherwise would have been if the belief was impartially assessed at the outset. This may seem intuitive, however, the challenge is that the human brain often arrives at a judgment on a fact or belief before the impartial analysis stage occurs; making it more difficult to pivot away from the initial judgment even when presented with evidence to the contrary. The ability for investment decision making to adapt when new information alters the original thesis is a key skill for successful market participants; however, the psychological wiring of the human brain makes this easier said than done.