Sunday, October 30, 2011

Nassim Taleb on learning from history

These quotes reminded me of the importance of using checklists in certain areas of life, including the investing process:
"As I mentioned above, it is not natural for us to learn from history. We have enough clues to believe that our human endowment does not favor transfers of experience in a cultural way but through selection of those who bear some favorable traits. It is a platitude that children learn only from their own mistakes; they will cease to touch a burning stove only when they are themselves burned; no possible warning by others can lead to developing the smallest form of cautiousness. Adults, too, suffer from such a condition.
The scientific name of the distinction between the two memories, the conscious and the nonconscious, is declarative and nondeclarative. Much of the risk avoidance that comes from experiences is part of the second. The only way I developed a respect for history is by making myself aware of the fact that I was not programmed to learn from it in a textbook format. Actually, things can be worse than that: In some respects we do not learn from our own history. Several branches of research have been examining our inability to learn from our own reactions to past events: For example, people fail to learn that their emotional reactions to past experiences (positive or negative) were short-lived—yet they continuously retain the bias of thinking that the purchase of an object will bring long-lasting, possibly permanent, happiness or that a setback will cause severe and prolonged distress (when in the past similar setbacks did not affect them for very long and the joy of the purchase was short-lived). All of my colleagues who I have known to denigrate history blew up spectacularly—and I have yet to encounter some such person who has not blown up." -Nassim Taleb, Fooled by Randomness