21 Jun The Value of Me

If someone could figure out how to buy me at the price I am truly worth and sell me at what I think I am worth, they would be able to pocket a very large sum of money.

Epistemic arrogance is the measure of the difference between what someone actually knows and how much he thinks he knows.  We all fall victim to this humility deficit.  A lot of it stems from what is known as the fallacy of silent evidence.  We draw highborn conclusions which we broadly call “wisdom” in evaluating “cause and effect” from our fleeting encounter with life’s interactions.  These conclusions are imbedded with little consideration to the universe of permissible outcomes from all of the social, economic, political and environmental activity external to our own experience.  This inherent imperfection in our DNA creates a knowledge gap that permits failure in calculating the spectrum of unforeseen outcomes when operating at a personal or professional level.  Hence, the magnitude of downside risk is amplified.

We continue to instinctively draw upon these restrictive assumptions to ascertain future outcomes without any acknowledgement that our lack of authentic exposure, judgement and jurisdiction over perfect information actually imbeds formidable risk within our system of activity, whatever that may be.

In addition, we also have the instinctive ability in retrospect to provide a simplistic narrative around what was an impossible unforeseeable event that was actually due to a complex equation of forces at play.

Example:  Many borrowers over recent years have been locking in interest rates lured by benchmarking their historical experience of been exposed to higher interest rates mixed with a mild dose of narratives around singular and isolated events.  These narratives may have been the threat of the US potentially raising interest rates at the end of 2015, or we are at historical lows so how can they go lower.  Yet with a matrix of global economic complexity, European countries continue to slip into negative interest rate territory and Australian yields still continue to fall.

Conclusion: What can be garnered from this realisation of our cognitive bias? Hold your perceived knowledge with the greatest suspicion and discount your value of judgement!

Then seek professionals that can rationally remove or disarm these expressive biases within the critical areas of your business decision making processes.

(Source: Nassim Nicholas Taleb – “The Black Swan” 2007)