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TIP623: The Art Of Decision Making w/ Annie Duke
We Study Billionaires - The Investor’s Podcast Network
Exploring the Outside View in Decision-Making and Rational Portfolio Management
Using the outside view in decision-making involves imagining oneself as a fresh decision-maker facing the portfolio today without any prior attachments. This approach aims to combat biases like the endowment effect and sunk cost fallacy. However, studies show that merely imagining a fresh perspective is not effective in making rational decisions. The key to rational portfolio management is to only hold positions that one would buy today without considering past investments. Clearing the mental decks periodically by selling all positions (if no transaction costs) and reassessing helps in avoiding irrational decision-making patterns. Implementing pre-commitment devices like kill criteria and regular portfolio reviews can aid in making objective choices and avoiding emotional biases in portfolio management.
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