Base rates and anchoring

The two biases that cost money: ignoring how often something usually happens, and leaning on the first number seen.

• Psychology and behaviour
• Decision-making

2 ideas that carry it

• FrameworkPsychology and behaviourBook

  Anchoring and base rate neglect are the two biases that cost money

  Before estimating, ask what number is anchoring you and what the base rate is for cases like this.

  Valuation, deal pricing, forecasting, and the behavioural finance questions in hedge fund and asset management interviews.

  From Thinking, Fast and Slow · Daniel Kahneman

• Decision principleInvestingBook

  One person's record is a story about survivorship until proven otherwise

  Ask how many people ran the same method and are not in the sample before treating a record as evidence of skill.

  Reading any success memoir, evaluating a manager's record, or presenting your own.

  From How I Made $2,000,000 in the Stock Market · Nicolas Darvas