Michael Mauboussin: Trusting Your Hunches: Beware the Hidden Traps of Pattern Recognition

Johnny HopkinsMichael MauboussinLeave a Comment

In this interview with Capital Allocators, Michael Mauboussin explains that while pattern recognition is natural, it’s crucial to be aware of our biases and apply it cautiously to avoid making decisions based solely on subjective impressions. Here’s an excerpt from the interview:

Mauboussin: I think this is very common that’s why I opened with a story… I was a junior analyst working for a senior analyst and came in and basically made a decision about a recommendation of a stock based on no analysis.

But he knew a couple things that were true for the most part historically and these are imprinted on his own experience and hence he made this decision.

So just to be clear we all have these sensations.

Now the other thing that’s really challenging about this basic concept is we remember when pattern recognition led us to a good outcome, even if it was luck.

And we forget about when it led to a bad outcome, even if it was bad skill.

That’s the other thing is we’re very selective as to when we remember when it works and when we remember when it doesn’t.

We all have these sensations when we walk around about these patterns.

The whole goal of this report is not to say this doesn’t apply, it does, but just be careful about applying it too broadly or too boldly.

You can listen to the entire interview here:

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