The Icarus Paradox offers a critical lesson on business, investing, and life.

Here’s a simple breakdown:

Survivorship Bias 101

History is written by the victors. But if we exclusively focus on these successes, we allow survivorship bias to distort our understanding of the world.

But what is "survivorship bias" and how does it work?

Here's Survivorship Bias 101!

👇👇👇

1/ First, a few definitions.

Survivorship bias is the logical error of concentrating on survivors (successes) and ignoring casualties (failures).

When we do so, we miss the true "base rates" of survival (the actual probability of success) and arrive at flawed conclusions.

2/ When we completely ignore failures, we lose our ability to correctly identify the differences between successes and failures.

Put simply, exclusively focusing on successes may actually inhibit our ability to identify (and replicate) the actions that led to such success.

3/ Cicero wrote on the topic over 2,000 years ago.

An atheist named Diagoras is shown portraits of people who prayed and were saved from death at sea as proof of God's existence.

Diagoras replies, "I see those who were saved, but where are those painted who were shipwrecked?"

4/ Cicero cuts right to the point - we cannot conclude that prayer led to being saved from the sea if we ignore those who prayed and then drowned.

Survivorship bias can lead to a deeply-flawed understanding of cause-and-effect relationships.

Let's look at some examples.

Warren Buffett is a treasure trove of wisdom.

But contrary to what you have been told, most of it has nothing to do with investing.

10 powerful lessons for life from the Oracle of Omaha:

Wait For A Juicy Pitch

“You don't have to swing at everything - you can wait for your pitch."

Life doesn’t reward you for the number of swings you take.

Focus on identifying the juiciest pitch.

When it comes, swing hard and don’t miss it.

Just Stop Digging

“The most important thing to do if you find yourself in a hole is to stop digging."

When things aren’t working, change course and try something different.

Be nimble. Be agile.

When you find yourself at the bottom of a hole, stop digging and climb out of it.

Exploit Disconnects

“Price is what you pay. Value is what you get.”

Seek out situations where there is a clear disconnect between price and value.

This applies to investing, but it’s more broadly a mental model for life.

Identify disconnects. Exploit them to your advantage.

Be Contrarian

“Be fearful when others are greedy and greedy when others are fearful.”

Following the crowd is easy, but it can be a trap.

Learn to think independently. Come to your own decisions. Develop your own mental models.

Your unique perspectives are your superpower.

The Cantillon Effect is the most important economic concept you’ve never heard of.

Here's a breakdown of what it is (and why you should care):

1/ Richard Cantillon was an Irish-French economist and philosopher born in the 1680s.

He achieved success as a banker—which he attributed to the formidable connections made through his family and employer.

At a young age, he had learned of the impact of proximity to power...

2/ Around 1730, Cantillon wrote a paper—Essay on the Nature of Commerce in General—which is considered a foundational work in the study of the political economy.

It was widely circulated in manuscript form, though it was not published until 1755, well after his death.

3/ In the paper, Cantillon posited that the early recipients of new money entering an economy will benefit more significantly than those it trickles down to.

In other words, the "flow path" of the new money matters!

4/ In 18th century terms, those closest to the King—the source of money/power—benefitted first when new money entered the economy.

Broadly, Cantillon observed that new money creates distributional effects based on where it enters the system.

The Cantillon Effect was born...

A “razor” is a rule of thumb that simplifies decision making.

The most powerful razors I’ve found:

The Feynman Razor

Complexity and jargon are used to mask a lack of deep understanding.

If you can’t explain it to a 5-year-old, you don’t really understand it.

If someone uses a lot of complexity and jargon to explain something, they probably don’t understand it.

The Luck Razor

When choosing between two paths, choose the path that has a larger luck surface area.

Your actions put you in a position where luck is more likely to strike.

It’s hard to get lucky watching TV at home—it’s easy to get lucky when you’re engaging and learning.

The Arena Razor

When faced with two paths, choose the path that puts you in the arena.

It's easy to throw rocks from the sidelines.

It's scary and lonely in the arena—but it's where growth happens.

Once you're in the arena, never take advice from people on the sidelines.

The Optimist Razor

When choosing who to spend time with, prioritize spending more time with optimists.

Pessimists see closed doors. Optimists see open doors—and probably kick down the closed doors along the way.

Remember: Pessimists sound smart, optimists get rich.