In an investment context it actually seems wrong to say: "A good decision cannot guarantee a good outcome. All real decisions are made under uncertainty. A decision is therefore a bet, and evaluating it as good or not must depend on the stake and the odds, not on the outcome." — Ward Edwards From Joe Wiggins at Behavioural Investment: Our tendency to judge the quality of a decision by the ultimate consequence is a simple concept. In many instances it is also a prudent one; results often provide a useful gauge of the value of the actions that led to them. However, once you add a healthy dose of randomness, things start to become problematic. Financial markets are the perfect breeding ground for outcome bias – results are obvious and easy to obtain, while judging process and decision quality is incredibly difficult, which means we rely heavily on the former. We also grossly understate the sheer level of unpredictability, largely due to the wonders of hindsight bias and our susceptibil...
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.
Subscribe now to unlock this article.
Support BusinessLIVE’s award-winning journalism for R129 per month (digital access only).
There’s never been a more important time to support independent journalism in SA. Our subscription packages now offer an ad-free experience for readers.
Cancel anytime.
Questions? Email helpdesk@businesslive.co.za or call 0860 52 52 00. Got a subscription voucher? Redeem it now.