- Definition: Related to how easily things come to mind.
- Insight: We estimate the frequency of events according to the ease with which examples of the event can be recalled.
Fooled by Randomness
by Nassim Nicholas Taleb
Published date: 2001
Category: Philosophy
Index Topics & Notes
- Example: A painting bought at $20,000 is now worth $40,000. If you had no painting, would you buy it at the current price? If not then you are married to your position because of the endowment effect, or your emotional investment.
- Insight: There is no rational reason to keep an asset you would not buy at the current market rate. This is the endowment effect at work.
- Definition: The overestimation of what one knew at the time of an event due to subsequent information.
- Insight: Past events will always look less random than they actually were.
- Insight: An effect of hindsight bias is overconfidence in predicting the future.
- Definition: Where past actions influence future actions.
- Insight: Beliefs are path dependent if the sequence of ideas is such that the first idea dominates.
- Insight: The endowment effect (valuing something more highly because we own it) is the result of path dependence, as we are wedded to our previous decision to acquire the item.
- Insight: Survivorship bias means that the highest performers are the most visible, because the losers are not visible.
- Insight: Luck should be accounted for when analysing success.