Michael Mauboussin talks about Cumulative Advantage, Counterfactuals, and the Halo Effect in his latest report released on Sep. 7, 2007.
Here is the summary :
- Predictions are difficult in culturally biased realms. Through a novel experiment, researchers showed an average song can become a hit or a clunker based on the principle of cumulative advantage.
- Investors must show considerable caution in counterfactual thinking, an exploration of what could have been. Such thinking can lead to suboptimal behavior.
- Management tomes are filled with advice derived from reverse-engineering the success of leading companies without awareness of how specious the claims can be.
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