The One Percent Almanack

Wit and Wisdom on Investing, Business, and Life

Vishal Khandelwal

Behaviouronomics: The Conjunction Fallacy

In 1983, Daniel Kahneman — the famous behavioural scientist — and his colleague Amos Tversky, published this example in Psychology Review. The example is about a fictitious character called Linda.

Linda is 31 years old, single, outspoken and very bright. She majored in philosophy. As a student, she was deeply concerned with issues of discrimination and social justice, and also participated in anti-nuclear demonstrations. Based on this information about Linda, you have to estimate which of the following statements about Linda are more likely to be true.
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Bookworm: Universal Principles of Design

In today’s world, we’re all designers. Whether it’s creating a powerpoint presentation, designing a website for your startup, creating a flyer for your kid’s school event or even taking a decision about your home interiors — we’re always dealing with design problems.

Most people believe that design skills are reserved for the creative lot — those who have a talent for art. But it’s not commonly known that a lot of aspects of design are actually rule-based. There’s a science to it; a formula if you will. And one doesn’t need to have an “eye” for design. Knowing the rules is good enough for us civilians.

Let me give you a few examples to make it more concrete what I mean by rules.

The L-shaped Layout

If you talk to landscape designers, they will tell you that it’s better to put three of the same kind of vertical structures — they could be pillars or trees — in your land, rather than four. Odd numbers just look better in that context. Now, why is it so is a matter of deeper investigation of human perception, but if you know this rule, you can instantly become an above average designer.
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Special Report: 27 Ideas on What Doesn’t Work — Part Three

In this series we’re distilling few ideas from Peter Bevelin’s book — All I Want to Know Know is Where I’m Going to Die, So I’ll Never Go There. A mouthful of a title, isn’t it? But if you’re familiar with Charlie Munger, you’d instantly recognize the title as Munger’s favourite saying. Hidden inside this wisecrack is a profound philosophy on how to make important decisions in life and business to ensure better outcomes.

What has been reinforced in writing this memo, writes Bevelin in the introduction, “is efficiency, simplicity, clarity and common sense or judgement that are the hallmarks of Buffett and Munger. Both have remarkable ability to eliminate folly, simplify things and boil down issues to their essence and get right to the point — and focus on simple and timeless truths. They are the Einsteins of business and wisdom. So if there is one goal of this book, it is simplicity and to better understand how they think.”
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Investor Insights: Sunil Shah

Sunil Shah has 25-years experience in the Indian equity markets. He started his career in the equity markets in 1994 and worked with Securities Capital before moving to Indsec Securities as Director Equities. In 2003, he moved to ABN AMRO, where he along with his team managed a PMS corpus of Rs 1,500 crore. Then in 2010, he joined Enam Securities Direct as Head of Research. Sunil is currently partners with Turtle Star Portfolio Managers. He qualified as CFA (ICFAI) and CWA (ICWAI) way back in 1997.

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Behaviouronomics: More Thoughts on Cognitive Dissonance

I had written about Cognitive Dissonance a few years back. You can read it here. Over the years, I have collected some more insights on the topic.

For the uninitiated, here’s a definition from Wikipedia —

In psychology, Cognitive Dissonance is the mental stress or discomfort experienced by an individual who holds two or more contradictory beliefs, ideas, or values at the same time; performs an action that is contradictory to their beliefs, ideas, or values; or is confronted by new information that conflicts with existing beliefs, ideas, or values.

Leon Festinger, the psychologist who developed the theory of Cognitive Dissonance, figured that human beings do not deal with conflicting beliefs and perceptions by testing them against facts. They reduce the conflict by reinterpreting facts that challenge the beliefs to which they are most attached.
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