This article applies insights from Michael Mauboussin’s new book entitled “The Success Equation: Untangling Skill and Luck in Business, Sports and Investing” to investment decision-making. I particularly like the author’s description of a classic experiment in which “… people guessed the outcome of a coin toss. When told they got the first four tosses correct, they concluded on average that they would be able to guess 54 of the next 100 coin flips.” In other words, people often fool themselves into attributing skill to pure luck.
Published by Jim Garven
My name is Jim Garven. I currently hold appointments at Baylor University as the Frank S. Groner Memorial Chair of Finance and Professor of Finance & Insurance. I also currently serve as an associate editor for Geneva Risk and Insurance Review. At Baylor, I teach courses in managerial economics, risk management, and financial engineering, and my research interests are in corporate risk management, insurance economics, and option pricing theory and applications. Please email your comments about this weblog to James_Garven@baylor.edu. View all posts by Jim Garven