659 Michael Mauboussin — How Great Investors Make Decisions, Harnessing The Wisdom (vs. Madness) of Crowds, Lessons from Race Horses, and More
This is a OPEN AI summary of the Tim Ferriss Podcast #659- visit www.TinyTim.blog for more AI summaries, or www.Tim.blog for the official Tim Ferriss Podcasts.
In this episode, Tim Ferriss interviews Michael Mauboussin, an investment strategist and author. They discuss a variety of topics related to investing, including the role of luck vs. skill, the importance of counterintuition, and how to read stock prices for better returns.
In this excerpt, Tim Ferriss and Michael Mauboussin discuss the idea of consilience, or the ability to draw from various disciplines to thoughtfully address a problem. They mention how the Consilient Observer series led to the book More Than You Know, and how these essays are short and pithy but cover a wide range of topics. Finally, they discuss how the decline of Western civilization can be seen in the invention of wheels on luggage.
The combination of cognitive ability and diversity is what makes for successful problem solving in organizations, as Scott E. Page's mathematical work demonstrates. In "The Wisdom of Crowds", Michael Mauboussin describes an experiment which shows that a group can come to a more accurate conclusion than an individual. The Asch experiment is also mentioned, which explores conformity and has implications for diversity. Jim Surowiecki's book, "The Wisdom of Crowds," explores when crowds are wise and when they go mad.
Diversity is important for "wisdom of crowds" situations because it allows for different types of cognitive diversity that can lead to more accurate predictions. The Two-Thirds game is an example of a problem that has an equilibrium solution of zero, and in this game, the person who wrote down the number closest to zero wins. In this conversation, Tim Ferriss and Michael Mauboussin discuss the idea of trying to predict future events by experimenting with a large group of people. They discuss the idea of super forecasters, and how the Tim Ferriss audience might be a good group to test this with. They also talk about how markets are already doing something similar to this.
In Mitchell Waldrop's book Complexity, the story of the founding of the Santa Fe Institute is told. The Institute was founded in 1984 by scientists who felt that academia had become too siloed. The Institute brings together scientists from different disciplines to work on complex problems. The book describes how some of the early ideas that came out of the institute have become mainstream ideas. It seems that value investors tend to be involved with the Santa Fe Institute. Value investing is defined as buying things that are statistically cheap, such as low price-to-earnings or low price-to-book ratio. The Santa Fe Institute is a great place for polymath-type people who are curious and want to learn. Bill Miller is a great example of someone who has been successful because he is always learning. Bill Gurley is another example of someone who is successful because he is curious and reads widely.
Base rates have been declining steadily, causing investors to take on more risk. However, base rates are not the only thing that determines expected returns; other factors such as credit and gold also play a role. Kahneman discusses the idea of the inside view versus the outside view, and how the outside view (or base rates) can lead to more accurate predictions. He gives the example of a horse winning the first two legs of the Triple Crown. In 2008, Big Brown was a heavy favorite to win the Triple Crown, but he lost the Belmont Stakes, costing many people who bet on him a lot of money. This is an example of a diversity breakdown, where a small group of people who are knowledgeable about horse racing can make money by betting against the public.
Michael Mauboussin is an investor and author who discusses the anti-social component to investing, and how some people are better at it than others. He cites neurobiologist Robert Sapolsky's work on stress in baboon troops as an example of how understanding stress can be important in making decisions. The punchline is that when you've turned on your stress response, you tend to shorten your time horizon. This can be a problem for investors, because it can lead to making decisions based on immediate needs rather than long-term goals. Mauboussin's book "Think Twice" discusses how to avoid common mental mistakes, including misunderstanding cause and effect, aggregating micro-level behavior to predict macro-level behavior, and considering enough alternative possibilities in making a decision. The article discusses the concept of a "pre-mortem," which is a tool that can be used to help people think more expansively about potential outcomes. The pre-mortem involves imagining that a negative outcome has already occurred, and then brainstorming what could have caused it. This exercise can help people to identify potential risks and plan for them accordingly.
Michael Mauboussin talks about the importance of counterfactual thinking and the dangers of hindsight bias and creeping determinism. He shares a personal example of a failure that ultimately led to success. Algorithms often outperform experts in many different fields, even when the experts are the ones who created the algorithms. This is especially true in complex domains where the wisdom of crowds is often better than that of any individual expert. Josh Waitzkin is a world-renowned chess grandmaster and martial artist. He has written a book called "The Art of Learning" in which he discusses his views on intuition. He believes that intuition is often over-relied upon because it only works in stable, linear situations - like chess.
In this conversation, Tim Ferriss and Michael Mauboussin discuss the role of speed in decision making. Mauboussin argues that speed is a deciding factor in many domains, and that if the rules are changed, it can take people time to adapt. Ferriss says that he is interested in fast decision making because it can be biased. They also discuss the importance of sleep and exercise for cognitive performance, and Mauboussin shares his parenting philosophies with Ferriss.
Michael Mauboussin is a former lacrosse player who became interested in sports analytics after reading Michael Lewis' book "Moneyball." He delved into the world of sports analytics and wrote "The Success Equation," a book about luck and skill. He also wrote "More Than You Know," a collection of his best writing on a variety of topics. In this clip, Tim Ferriss and Michael Mauboussin discuss the value of studying complex adaptive systems. Mauboussin argues that understanding complex systems can help us to make better decisions and interventions in the world.
In this episode, Tim Ferriss interviews Michael Mauboussin, a cognitive scientist and author. They discuss a variety of topics related to thinking better and working better, with a focus on the importance of sleep, exercise, and diet for peak performance.
659 https://tim.blog/2023/03/03/michael-mauboussin/
