We tend to recall our winners disproportionately, a wiring flaw in our human composition.
I first became acquainted with this fact when someone dear to me began touting her remarkable track record with matchmaking friends. She liked to entertain friends at social gatherings with the two marriages that had come into being due to her intervention.
Much was made by the admiring crowd of the addition to the world's net happiness and subtraction from the world's net loneliness that resulted from said matchmaker's contributions to society.
But a numerator is only useful if you know the denominator. And having witnessed a rather large partial denominator of matches that never worked out, I was understandably less taken by the successes.
I was reminded of this while picking up a book it seems that I've been in the process of reading for at least half a decade, The Black Swan by Nassim Nicholas Taleb. It's a stew of interesting ideas that a particularly wry, erudite favorite professor with an acid tongue and an eye for the absurd might voice during a departmental happy hour.
Taleb was describing the fallacy of methodically examining numerous successful millionaires, finding characteristics they have in common (e.g., early riser, eats tofu, optimistic, sleeps on stomach) and concluding that one should emulate these characteristics in order to improve one's odds of attaining millionaire status.
His point was that the substantial number of early rising, tofu eating, stomach sleeping optimists who never attained millionaire status (i.e., the appropriate denominator) were never taken into consideration when compiling this list of millionaire characteristics.
I've clearly fallen for this bait many a time. ESI Money's millionaire interview series is compelling clickbait, and I like to believe I learn a little more about the many roads to wealth accumulation with each story I read.
Even recent posts extolling lessons from ex-presidents seem to overlook the far greater denominator of non-ex-presidents that have equally valuable lessons I might learn from.
Why do I seem so willing to take heed of lessons from these sources, or assume the subjects of a book like Stanley and Danko's The Millionaire Next Door are legitimate rather than lucky?
I am clearly not so charitable when it comes to attributing skill to the 10-15% of active equity managers who manage to persistently beat their comparable stock index.
I'll conclude with a footnote from the book that caught my whimsy and seemed to summarize the contradictions inherent in doctors:
Doctors are rightfully and vigorously skeptical of anecdotal results, and require that studies of drug efficacy probe into the cemetery of silent evidence. However, the same doctors fall for the bias elsewhere! Where? In their personal lives, or in their investment activities. At the cost of being repetitive, I have to once again state my amazement at the aspect of human nature that allows us to mix the most rigorous skepticism with the most acute gullibility.
Bravo, Mr. Taleb.
I am precisely this kind of sucker, but I'm trying to protect my finances from my more harmful instincts.
Comments 6
10 physicians spends 24 years becoming educated. They walk into a 100 story building with 10 metal doors and push a button. All the doors open and each gets on one of the metal boxes and pushes a button on the control panel for that box. The door closes and they ascend into the bowels of the building. It turns out each box has an upper limit of ascent that is unique. 1 box goes to 1-10, one 1-50 and one 1-100 etc. Box 5 goes to 100. They can choose any button on the particular box’s panel and can only make the ascent once.
Each floor = 10K of net worth. They have read every Bogglehead book known to man AND sleep on their stomachs AND read ESI AND even got MBA’s! How do they get to be a millionaire? How do they get to be a 10 millionaire?
Author
A physician finance koan!
Great one CD! When I was around 13 my friend and I witnessed my friend’s mother slice her finger while cutting carrots. She exclaimed “I ALWAYS slice my finger when I’m cutting carrots!” In fact, this was the 2nd or 3rd time it had happened, out of the hundreds of times she had cut carrots. That day, our Cutting Carrots Theory was born. People are really good at seeing what they see (ie the numerator). But they are terrible at seeing what they don’t see (ie the denominator).
Ever since, I’ve tended to look nearly exclusively at the denominator, numerator be damned. No wonder my wife finds me intolerable!
Author
CC,
I’ve no doubt your wife is a saint.
I teach my kids, much to their chagrin, to always doubt any statement that includes the words “always” or “never” when uttered by a human – our inconsistency is our most reliable feature.
Is a life spent seeking the denominator more depressing, even if it’s more truthful?
Fondly,
CD
It is only natural to try to emulate those that are successful.
Author
Too true, DP, but it’s our flawed understanding of the underpinnings of that success that lead to our lousy attempts to mimic that success.