“Most of us view the world as more benign than it really is, our own attributes as more favorable than they truly are, and the goals we adopt as more achievable than they are likely to be. We also tend to exaggerate our ability to forecast the future, which fosters overconfidence.” – Daniel Kahneman
I was watching World War Z last weekend and actually found an interesting investing lesson against the backdrop of Brad Pitt trying to fend off the zombie apocalypse.
Without giving too much away about the plot, there was a Mossad agent trying to explain to Brad Pitt’s character why Israel was far more prepared for a zombie outbreak than the rest of the world. The reason was the 10th Man Rule.
He explained that Israel’s security council had 10 advisors that looked into big picture issues. If the first 9 dismissed an issue or potential danger to the country, then the 10th man was forced to overrule them on principle and look into the issue no matter how far-fetched the scenario.
That way Israel would always be prepared for black swan events. This allowed them to build a large wall to help keep out the zombies.
This fairly simple and common sense rule could also help with our finances. Two of the behavioral patterns that can get us into trouble are the overconfidence bias and the confirmation bias. These biases can cause you to ignore potential risks while only looking at research and facts that agree with your current feelings.
Far too many investors focus only on confirming information while ignoring evidence to the contrary. This can blind you to potential risks that may be overlooked due to the fact that we tend to have a better view of our own abilities. It makes sense to seek out viewpoints that oppose your own to keep a level head and not rely on the same sources for every financial move that you make.
So the next time you are researching a big financial decision, think about zombies and Brad Pitt to stay grounded.
My review of World War Z: Solid action/thriller/suspense/zombie/end of the world movie if you’re into that kind of thing.
A Wealth of Common Sense is a blog that focuses on wealth management, investments, financial markets and investor psychology. I manage portfolios for institutions and individuals at Ritholtz Wealth Management LLC. More about me here. For disclosure information please see here.
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