Illusions, Delusions And A Stroke Of Dumb Luck

kahneman 40 years ago, Princeton economist Burton Malkiel stated his famous, oft-repeated and just as often overlooked observation:

“Any blindfolded monkey throwing darts at a newspaper’s financial pages could select a porfolio that would do just as well as one carefully selected by experts.”  


 Analysis of the performance of fund managers over the longer term proves conclusively that people would do just as well if they entrusted their financial decisions to a monkey throwing darts at a board.

kineman1There is a tremendously powerful illusion that sustains financiers in their belief that their results, when good, are the result of superior skill. Daniel Kahneman explains how the illusion of skill works in his new book Thinking, Fast and Slow, Mr Kahneman said the stock-picking industry is premised on an “illusion of skill” and “the results resembled what you would expect from a dice-rolling contest, not a game of skill.”The fact remains that “performance bonuses” are awarded for luck, not skill. They might as well be handed out on the roll of a die: they’re completely unjustified.  Performance bonuses are needed to perpetuate the shared myth of skill, and since the myth is known to be a myth, the system is profoundly dishonest – unless the dart-throwing monkeys are going to be cut in.

Below: How mostly luck helped Google to become a formidable company of today:

Thinking, Fast and Slow by Daniel Kahneman. Excerp

Thinking, Fast and Slow by Daniel Kahneman. Excerpt


kineman3To sum up the focusing illusion in a not so many words: Nothing in life is as important as it seems to be when you focus on it.  When people think about money and happiness, they are inevitably focusing on the circumstances in which money can by stuff that can make them happy. Happiness – believe it or not – depends on the level of income to a lesser degree than on a whole lot of other factors.

kineman4When people think about what it is like to be paralyzed, blind, limbless, the winner of a lottery or a resident of the State of California, people focus on the distinctive features of each of these states. Paralysis sufferers might often feel quite unhappy, but certainly not every minute of every day. Most of the time they do not focus on their illness, going on with their day-to-day lives.

kineThose, who look at certain circumstances of life from the outside, and those, who are the “victims” or the “insiders“ of these circumstances, see things differently. Their focus affects their perception, assessments and predictions.

The most eager, skilled and merciless users of the effects of “focusing illusions” – no surprise here – are marketers. They are bound to exaggerate the necessity of the product they are selling

Politicians use it too, when they sell their ideas to their constituents. The focusing illusion created when people’s attention is centered on the excessive importance of the politician’s pet projects: school uniforms will immensely improve the quality of education, health care reform will fundamentally change the quality of life in the U.S. for better or for worse, depending on the politicians’ leanings.desicions


One comment on “Illusions, Delusions And A Stroke Of Dumb Luck

  1. Illusions “focused” or “diffused” are the cornerstone of the “American dream” (better called American fairy tale).
    While much could be said about randomness /unpredictability of the “stock market game”, the financial casino operates in a very different (far more controlled) fashion.Financial speculators/profiteers get their outlandish rewards for rigging the game.
    Another comment concerns “prosperity vs. happiness”. Despite persistent effects by business gurus and mass infotainment industry to turn us into blind worshipers of the almighty “Golden calf”, real happiness has little to do with personal wealth, even in US ( Let along on in other more civilized places:

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