Acting Under Uncertainty - 25 Rules Of Thumb
- Beware of salient rewards and excessive competition - they increase exposure to chance events and reduce the role of skill in acquiring rewards
- Watch for hidden correlations
- Be suspicious of stability or the appearance of stability - there are higher dimensions of risk lurking in the shadows
- Remember that volatility begets volatility
- Invest in preparation - insure against the worst-case-scenario
- Take a large number of risks where the downside is clipped and well-understood (the risk of embarrassment is a good example of such a risk)
- Focus on the knowledge as well as the confidence on the knowledge - calculate error rates whenever possible
- Don’t play in uninsurable environments
- Diversify. Massively
- Be wary of conventional statistics (”R squared,” correlation) in domains where there is evidence for the existence of power-law behavior
- Remember that uncertainty stems from unknowledge - chaos theory is not the same thing
- In the short to medium term, the least fit can survive and even excel
- Beware of “because” and inferring causation - especially if the downside of being wrong is high
- Salient options can be overpriced
- The past is not the future
- Distinguish between domains with and without experts - know “how” vs. know “what”
- There are always things that can be done even with no knowledge - acting under true uncertainty need not lead to decision paralysis
- Disconfirmation is more powerful than confirmation - the problem of induction
- Absence of evidence is not evidence of absence
- Strive to balance searching and acting
- Look for the presence of survivorship and availability bias
- Question your premises
- Impact matters - distinguish between frequency and impact
- Always remember - rare events are unpricable
- Prepare for the worst, hope for the best
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