I hope everyone enjoyed their holiday weekend. Shorter week this week so a little bit shorter of a weekend reading. It is crazy we are already into September, but football season is officially back!
- Anchoring bias is a simple yet dangerous bias that occurs when people rely too much on pre-existing information or the first information they find when making decisions
- One of the classic examples of anchoring bias is retailers offering goods “originally” priced at some high value that is then “marked down” to a sale value
- It is almost impossible to eliminate this bias. But it is possible to reduce the effects of this bias through active effort and gaining additional clarity through research and data
- Being stuck to the anchor to make predictions reduces your ability to have thoughtful predictions and make educated decisions
For more on heuristics and behavioral biases check Thinking, Fast and Slow by Daniel Kahneman
Morgan Housel is a great writer and provides very digestible information in short posts. I recommend everyone give his blog a follow. And if you still haven’t, check out his book!
- Complex subjects can often be broken down into a few simple truths
- Mastering these truths is critical to the success of learning more of the nuanced and difficult parts of a topic
- Beliefs are very similar. You may have thousands of investing beliefs but being able to break them down into some simple anecdotes is important for further understanding
- The list provided is great, but a couple really stand out to me. Especially given the current state of the economy and the markets
- Incentives are the strongest force in the world
- Sitting still feels reckless in a fast-moving world, even in situations where it offers the best odds of long-term compounding
- I think this one is especially timely given the volatility we have seen all year and the constant barrage of differing viewpoints in the financial media. Sometimes it is important to take a step back and recognize what your true investing goals may be and sitting still for some time may be the best course of action
Some Things I Like and Don’t Like About Student Loan Forgiveness
Ben Carlson does a good job of breaking down the student loan forgiveness from a variety of viewpoints. Although I don’t agree with all his takes it is still important to examine things of this nature with this type of nuanced approach
Loan forgiveness like this does nothing to solve the underlying problem. Which is that college costs have been increasing at a ridiculous rate over the last 40 years.
The government just dumping money into the problem does nothing to solve the core issue. But it is easy considering the hold the majority of the loans.
The government currently holds over 90% of student loans and charges significant interest on these loans.
- Why does the government look to make so much money on this type of debt?
From the previous post. “Incentives are the strongest force in the world.” If people want college costs to stop increasing at such a rapid pace, they need to change the incentives for college pricing
- Colleges should have some skin in the game when it comes to converting the degrees into jobs. Holding both the students and universities accountable to some extent would cause colleges to be more strategic about course offerings. As well as students choice of what degrees to pursue.
- One potential solution rather than handing out loan forgiveness. The government could provide lifetime tax credits for higher education costs. This provides incentives to continue to higher education but does not immediately disenfranchise certain subsets of people that have already paid off their loans.