💩 two words that matter
|Mike Dariano||Sep 9, 2019|
There's a very helpful idea pioneered in academics by Daniel Kahneman and promoted in investing by Michael Mauboussin and the idea is this: consider the outside view.
These two words will be a helpful now that we've given a name to the thing. Before we get to the outside viewlet's take a moment to address names.
Names matter a lot because names are non-numeric metrics. A 'delicious' meal or a 'good' deal are evaluations like a $40 bill or 4 out of 7 items on a list. Names matter.
Adam Savage has always been a tinkerer. Even before hosting the television show Mythbusters Savage was into cosplay. He's still into it.
For one project, Savage had a problem. He needed a certain kind of bottle, only his internet searches had failed him. He'd searched based on shape, material, size, and every other metric that came to mind. He was lost because names matter.
Savage didn't know how glass bottles were named—by their opening. Once he realized that he searched, found, and collected the remainder of his costume. Names matter because we can understand things in new ways.
Okay, back to Messrs. Kahneman and Mauboussin and their words, outside view.
The outside view is What typically happens. Ask yourself, what typically happens.
The NFL season got underway this past weekend and it's a good chance for us to see, from our point-of-view, the outside view in action.
Most fans of a team will be hopeful optimists about why their team is better than the year before (except I've heard, Jets fans). They'll create internal narratives around Player X developing, Player Y joining the team, or Coach Z making much better decisions that the obvious idiot he replaced. Team fans are what Kahneman and Mauboussin call the inside view.
Step out, away from their team, and we see something different. What we tell stories about is often just mean reversion. What we see as cause and effect from the outside is just chaotic systems where something has to happen.
That doesn't mean the outside view is the answer, but instead it's a place to start. Kahneman told Mauboussin, "If you start your analysis from the outside view, with a known base rate, it gives you a fair anchor and ballpark from which to work."
This week we'll dig into the outside view and see an example, give this name some character. Then we'll look at the biggest problem.