In their recent episode of the VALUE: After Hours Podcast, Jake Taylor, Bill Brewster, and Tobias Carlisle discussed Using Kahneman’s Advice On An ‘Outside View’. Here’s an excerpt from the episode:
Jake: Kahneman would say or would probably describe this proceed– he calls it estimate talk estimate. What you do is, you on your own without– you haven’t talked to anybody like– let’s say we have a group of people who were trying to make a decision on something. You go make your own independent assessments, you write it up, and then everyone shares later after they’ve done their own work, you talk through it, talk through the points. Hopefully, some of you reveal– you get some outside view which is the important part that we’re trying to control for. But you don’t get your outside view before you have your own inside view first. So, you talk and then you make another estimate. Now, that you’ve incorporated the outside view, you’ve heard some of the other arguments, you make another estimate, and then actually blend of everyone’s estimates at that point, you can get a pretty reasonable wisdom of the crowd start to emerge.
Bill: Yeah, I guess I agree with that, because of Greenblatt’s little thing that he says too.
Tobias: You also have the problem that often, financial statements are just hard to interpret, and you need someone– there’s a weird thing and you can go to the CFO, what’s this mean? Go to somebody external, what’s this mean? It’s hard. It’s just hard to figure everything out by yourself.
Bill: Yeah, I just think there’s so many experts out there that actually have information that, I don’t know, not talking to them seems really foolish.
Jake: Yeah, I’m not. I don’t think anyone’s saying don’t seek outside views.
Bill: No, I understand. You’re saying form your own view, then go talk to people, then up your view, then go talk to people, then up your view, then go talk. I get it. I just don’t know how–
Jake: I don’t get the sense that that’s how people typically do it though. I think people pitch each other, and get biased, and then you go look like– well, are the few things that they said seem to be true, you go look for the data support that and like, “Well, lo and behold, you found it.”
Bill: Yeah. I guess I would say that I think it’s more accurate to say, if somebody is selling a newsletter or holds anything in their portfolio in size, they’re likely biased, so heavily discount what they have to say. But I don’t I don’t know that I agree– It doesn’t matter. I’m no good at this anyway. I’m just some fucking guy on a podcast. I just don’t know that I agree with it. I’m probably theoretically imperfect. I don’t think that without talking to people, I’ve come to very accurate conclusions almost ever.
Jake: That’s fair.
Bill: Even at the bank, we hire– I do think this is why experts have information to sell to people because I think that they’re much, much better than a generalist at assessing a situation on average within a sector. But then I think generalists are probably better at a cross-sector analysis and seeing all of the opportunities.
Tobias: Shall we move on?
Jake: Let’s get some RA confirmation bias.
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