How Little We Know – Safal Niveshak

Before I start today’s post, I have a quick announcement to make.

I run personal workshops on Value Investing in –

  • Bengaluru: Sunday, April 7
  • Bombay: Sunday, April 14
  • Dallas (USA): Saturday, April 27
  • New York (USA): Saturday, May 11

If you are in or around these cities and wish to wait, please register here.

How little we know

Daniel Kahneman, the pioneering psychologist and behavioral economist who taught me that it’s perfectly okay to say “I don’t know” when faced with difficult questions in life and investing, recently died at the age of 90.

His bestseller Thinking, Fast and Slow introduced me to his insightful observation that we, as humans, are generally blind to our blindness.

wrote, “We have very little idea of ​​how little we know. We are not designed to know how little we know.”

Although these words are brief, their depth far exceeds their brevity.

Despite its remarkable capabilities, our brain is inherently limited in what it can perceive, process and understand. These limitations are not simply knowledge gaps that can be filled with more information or education. Instead, they represent a fundamental limitation of our cognitive abilities.

As Kahneman explains in his book, one of the most significant barriers to our understanding are cognitive biases, which are like mental shortcuts or rules of thumb that our brains use to quickly understand the world around us. They can be useful because they allow us to make quick decisions without having to stop and think about every little thing. However, these shortcuts are not always accurate and can sometimes lead us to make wrong or irrational decisions.

Another key aspect of our cognitive limitation, according to Kahneman, is overconfidence. Most people tend to overestimate their knowledge and abilities. This overconfidence can lead to disastrous decisions as people act on incorrect assumptions and misinformation, believing they understand more than they actually do. Overconfidence in our knowledge not only hinders learning, but can also lead to significant errors in judgment.

Anyway, the question is: Now that we know the flaws in our knowledge, can we do something about them to make better decisions?

Kahneman advised that the first step is awareness. Realizing that our understanding of the world—investing and beyond—is inherently limited and that we are prone to cognitive biases is essential. This recognition can foster humility and openness to new perspectives, making it less likely that you will fall prey to overconfidence.

Another effective strategy is openness in seeking opinions from different people. Being a loner, I have a lot of ground to cover here, but I understand that this can provide a wider range of insights and ideas to help fill in the gaps in our understanding. This diversity can act as a counterbalance to our individual biases and overconfidence, leading to more informed and balanced decisions.

Also, education and lifelong learning they play a key role in alleviating our cognitive limitations. While we can never fully overcome these limitations, lifelong learning can help us make better, more informed decisions. The pursuit of knowledge and wisdom should be seen as an ongoing journey, not a destination.

Before I finish, here’s the crux of it all. Recognizing our cognitive limitations, as Kahneman’s work emphasizes, is not a cause for despair but a call to action.

By acknowledging and addressing these limitations, we can make more informed decisions, evolve into lifelong learners, and ultimately navigate life’s complexities with greater wisdom and humility.

As Kahneman advised, the path to understanding and wisdom is endless, but it enriches our lives and expands our horizons in profound ways.

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