- Thought the Beavers would beat the Cougs last night.
- Overslept by four minutes this morning – I wake up at the exact same time every day, so it was a surprise.
- Thought my back had healed enough to pitch batting practice yesterday.
- Went to put my vehicle through the car wash this morning, but it was closed for, what looks like, major remodeling. I literally drive past it every day and didn’t notice until today.
- Every morning I make a decision to take one of two routes when leaving the parking lot after dropping my son off at school. Today’s route was backed up by traffic for much longer than the other route (which you can see while waiting).
- Emailed the wrong form to a client and then immediately resent the correct one after noting the error a nanosecond after clicking the send button.
- Took a sales call this morning even though I knew who was calling and knew it would be a waste of time. Not sure why I still do that sometimes.
- Switched cars with my wife about an hour ago and forgot to grab my wallet.
Obviously, the last 24 hours has been fairly uneventful. These mistakes are trivial, really not even worth noting. However, they leave a clue that points to a bigger problem. If all of us can make these kinds of common errors involving daily, routine occurrences, why should we expect decisions made on big, unfamiliar, infrequent things to be any more accurate?
For example, let’s say that you are planning for your retirement and you make an assumption that your money will earn x% for the next twenty years. What if you are wrong? Not just a little off, but spectacularly wrong? Or, let’s say you are absolutely convinced that the economy will do x and this will cause the market to do y. Could you be wrong? Could you be right about one part of it and still wrong about the other? Yes, of course you could.
We are regularly wrong about the biggest, most momentous decisions in life. The divorce rate is near 50%. Accidental pregnancies happen all the time. People are often swindled by longtime friends and even family members. We hire the wrong people. Borrow ungodly sums of money for college degrees of questionable value. The list is endless.
Humility is valuable. A decision, especially with regard to forecasting an investment or a market, should come with an explicit acknowledgement that you can’t know the future. You should expect to be wrong with a high degree of regularity. Since being wrong is unavoidable, we have to plan for ways to live with it. Plan for ways of limiting the damage of being wrong while maximizing the benefit of being right.