- Overestimates the odds of success when applied to oneself. Everybody buying a lottery ticket mentally assumes a much better probability of winning than reality usually presents.
- Attributes random events in the past as contributing to success/failure. Survivors of the shipwreck would tell the story of how they all prayed for their lives, and thus got saved. While some religious groups would tend to pick up the story as the proof of whatever agenda they’re pitching, nobody generally listens to the stories of those who prayed, but still drowned. Business journalists (with CBS MarketWatch being the worst) frequently abuse this by pitching headlines like Stocks down after Congress increasing military spending in the morning, and Stocks up as Congress approves larger military budget in the afternoon.
- Looks for order and sequence where it doesn’t exist. Business book writers made a cottage industry out of this by surveying the life stories of prominent individuals, and then reselling those as recipes for success. The quirkier the trait, the better it suits the public. Peter Thiel wakes up early and runs in the morning – I see, so that’s a secret recipe for running a successful hedge fund.
- Listens to the experts that don’t know any better. There’s a whole bunch of occupations, where expertise is learned, and re-learning it requires significant time investments. Mechanics, doctors, and foreign language interpreters all have such skills. Other kinds of expertise involve looking back at what happened and trying to draw the line of correlation among discordant and random events. Such experts involve financial analysts and government economists.
- Hungs up on small things without seeing the big picture. If you have significant money in savings accounts, you’re probably busy looking for a better rate. However, the bigger picture, the Black Swan of the US banking industry, is significant asset consolidation among major banks. If one of them gets hit, all of them get hit significantly. The possibility of over-exposure to subprime loans and possible collapse of the banking industry generally escapes the model that your financial analyst presented.
http://www.moskalyuk.com/blog/the-black-swan/1505
