The search for alpha requires dealing in unknowns. Some are known unknowns; others we’re completely blind to. To make progress, we simplify, abstract and employ models (mental and/or quantitative), seeking enough evidence and confidence to allocate capital.
But how do we know that we’ve chosen the right model/tools for the problem? And how can we differentiate between unlucky outcomes and those resulting from ignorance?
One of the research sessions at the Time Summit showcased University of Michigan’s David Dunning and his work on hypo- and hypercognition:
- Hypocognition: the lack of a linguistic or cognitive representation for an object, category, or idea
- Hypercognition: or the over application of familiar concepts to circumstances where they don’t belong
David’s keynote examined this psychological model and detailed its implications for our decision making.