Page 189 - Psychology of Money - Timeless Lessons on Wealth, Greed, and Happiness-Harriman House Limited (2020)

COBACOBA
Daniel Kahneman once told me about the stories people tell themselves to
make sense of the past. He said:

Hindsight, the ability to explain the past, gives us the illusion that the world
is understandable. It gives us the illusion that the world makes sense, even
when it doesn’t make sense. That’s a big deal in producing mistakes in
many fields.

Most people, when confronted with something they don’t understand, do
not realize they don’t understand it because they’re able to come up with an
explanation that makes sense based on their own unique perspective and
experiences in the world, however limited those experiences are. We all

want the complicated world we live in to make sense. So we tell ourselves
stories to fill in the gaps of what are effectively blind spots.

What these stories do to us financially can be both fascinating and
terrifying.

When I’m blind to parts of how the world works I might completely
misunderstand why the stock market is behaving like it is, in a way that
gives me too much confidence in my ability to know what it might do next.
Part of the reason forecasting the stock market and the economy is so hard

is because you are the only person in the world who thinks the world
operates the way you do. When you make decisions for reasons that I can’t
even comprehend, I might follow you blindly into a decision that’s right for
you and disastrous to me. This, as we saw in chapter 16, is how bubbles
form.

Coming to terms with how much you don’t know means coming to terms
with how much of what happens in the world is out of your control. And

that can be hard to accept.