Success in investing and gambling involves distinguishing between luck and skill. 'Resulting' biases decision evaluations based on outcomes rather than decision-making processes.
Deep dives
Understanding the Impact of Skill, Luck, and Decision Quality on Outcomes
In various competitive spheres like investing and gambling, outcomes are influenced by factors beyond skill, such as luck and uncertainty. The difficulty lies in distinguishing between luck and skill in determining success. A comparison between a car accident and a poker game illustrates how clarity into decision quality varies based on the level of information available, leading to misjudgments.
Examining the Role of 'Resulting' and its Influence on Decision Evaluation
Annie Duke introduces the concept of 'resulting,' highlighting how individuals often judge the quality of a decision based on its outcome rather than the decision-making process itself. 'Resulting' can be attributed to a fundamental human tendency to seek certainty and clarity in understanding causation. However, this cognitive bias can lead to misleading evaluations, particularly in complex and uncertain environments like financial markets.
Exploring the Concept of Risk Sharing and Understanding Market Dynamics
Toby Moscowitz and his team delve into the notion of 'who is on the other side' in investment decisions, emphasizing the importance of recognizing the diverse actors and motives influencing market dynamics. By viewing investment strategies as risk-sharing agreements, the researchers shed light on how different investors hold varying positions in factors like value and momentum. Understanding the rationale behind opposing positions helps in comprehending market behaviors and potential insights for decision-making strategies.
How do we learn from situations where there are other forces at play? Former professional poker player and author Annie Duke looks at decisions when the outcomes are beyond our control, and AQR’s Toby Moskowitz delves into who is on the other side in factor investing.