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Dunning-Kruger Effect 101

In a year when the markets have minted many new self-proclaimed geniuses, it is worth remembering the Dunning-Kruger Effect.

But what is the Dunning-Kruger Effect and how does it work?

Here's Dunning-Kruger Effect 101!

👇👇👇

 1/ First, a few definitions.

The Dunning-Kruger Effect is a cognitive bias in which people with low ability at a given task are prone to overestimate their ability at that task.

Put simply, humans are notoriously incapable of objective evaluation of their competency levels.
2/ The cognitive bias was first identified by psychologists David Dunning and Justin Kruger in a 1999 study.

Their paper, entitled Unskilled and Unaware of It, summarized, "People tend to hold overly favorable views of their abilities in many social and intellectual domains."
3/ The two men had studied the bizarre case of McArthur Wheeler, a 5'6" 270lb bank robber who was swiftly caught after robbing two banks in broad daylight.

He hadn't worn a mask.

Instead, he had put lemon juice on his face, believing it would make him invisible to cameras.
4/ Wheeler was aware that lemon juice was used as invisible ink, so (incorrectly) inferred that it could be used to make himself invisible to security cameras.

Even after he was caught, he was legitimately incredulous that his plan with the lemon juice hadn't worked.
5/ Dunning and Kruger studied whether the least skilled are the most overconfident.

Their finding: the worst performers consistently overestimated their abilities relative to others.

Let's look at a few examples of this bias in action and how you can avoid its pitfalls.
6/ In investing?

As the saying goes, "everyone is a genius in a bull market."

When markets are ripping and your portfolio seems to grow by the day, many fall victim to the Dunning-Kruger Effect.

We may wrongly attribute this performance to our innate talent as investors.
7/ In politics?

With politics, intellectual humility is an aberration, not the norm.

Politicians espouse policy ideas with great confidence even if they have a weak handle of the details.

It's not shocking that we see Cobra Effects in the policy realm. https://t.co/gKuHcJTjW7
8/ In business?

Everyone has had that one boss - the know-it-all who actually knows very little.

These bosses (who typically get stuck in middle management) hold back organizations from high performance.

They are easy to spot - we all know who they are.

Beware this boss!
9/ But while we can all rail against the politicians, bosses, or public figures who seem to epitomize the Dunning-Kruger Effect, it is important to recognize that, as humans, we are all prone to this cognitive bias!

So how do we avoid it?

Here are a few strategies.

👇👇👇
10/ Identify your Circle of Competence.

The Circle of Competence is the set of topic areas that align with a person's expertise.

Be ruthless in identifying and protecting the boundaries of your Circle of Competence.

Hint: it's usually smaller than you think.
11/ Get comfortable with, "I don't know."

Most people have an inherent discomfort with saying, "I don't know."

Change that. Embrace what you don't know.

The world would be a much better, more efficient place if we stripped out the fluff and cut to the "I don't know" chase.
12/ Be a first principles thinker.

Think you know something? Challenge yourself, your reasoning, and your assumptions as a matter of practice.

It's uncomfortable, but it is also essential to creating non-linear outcomes. https://t.co/31EZVZDLM1
13/ As Charlie Munger said, "It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent."

Know your competencies, focus on them.

Know your incompetencies, avoid (or outsource) them.
14/ "It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so."

So the next time you catch yourself marveling at your skill at a task, remember the Dunning-Kruger Effect and the strategies for avoiding it.
15/ That was Dunning-Kruger Effect 101. I hope you found it useful.

For more on this topic, check out the resources below:

https://t.co/5TpIxyWjCD

https://t.co/mYfcPw2rcH

https://t.co/9lmroooQHn

https://t.co/2rlAXpPGt6

https://t.co/sAqJLE1gJi

https://t.co/5vAlRTbi5u
16/ Special thank you to the intimidatingly-talented @jackbutcher of @visualizevalue and @value for the incredible visuals.

For more educational threads on business, money, finance, and economics, follow me on Twitter and check out my meta-thread below. https://t.co/53UhhfzIcp

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The most powerful paradoxes of life:

The Persuasion Paradox

Have you noticed that the most argumentative people rarely persuade anyone?

The most persuasive people don’t argue—they observe, listen, and ask questions.

Argue less, persuade more.

Persuasion is an art that requires a paintbrush, not a sledgehammer.

The Effort Paradox

You have to put in more effort to make something appear effortless.

Effortless, elegant performances are often the result of a large volume of effortful, gritty practice.

Small things become big things. Simple is not simple.

The Wisdom Paradox

“The more I learn, the more I realize how much I don't know.” — Albert Einstein

The more you learn, the more you are exposed to the immense unknown.

This should be empowering, not frightening.

Embrace your own ignorance. Embrace lifelong learning.

The Growth Paradox

Growth takes a much longer time coming than you think, and then it happens much faster than you ever would have thought.

Growth happens gradually, then suddenly.

When you realize this, you start to do things differently.
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THREAD: With #silversqueeze trending on Twitter, it appears that this week's market spectacle may well be in the silver market.

A perfect moment for a thread on the Hunt Brothers and their alleged attempt to corner the silver market...


1/ First, let's set the stage.

The Hunt Brothers - Nelson Bunker Hunt, William Herbert Hunt, and Lamar Hunt - were the sons of Texas tycoon H.L. Hunt.

H.L. Hunt had amassed a billion-dollar fortune in the oil industry.

He died in 1974 and left that fortune to his family.


2/ After H.L.'s passing, the Hunt Brothers had taken over the family holdings and successfully managed to expand the Hunt empire.

By the late 1970s, the family's fortune was estimated to be ~$5 billion.

In the financial world, the Hunt name was as good as gold (or silver!).


3/ But the 1970s were a turbulent time in America.

Following the oil crisis of the early 1970s, the U.S. had entered a period of stagflation - a dire macroeconomic condition characterized by high inflation, low growth, and high unemployment.


4/ The Hunt Brothers - particularly Nelson Bunker and William Herbert - believed that the inflationary environment would persist and destroy the value of their family's holdings.

To hedge this risk, they turned to silver.

They began buying the metal at ~$3 per ounce in 1973.
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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.
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First principles thinking is a powerful framework for deconstructing complex problems and driving non-linear outcomes.

Here's a breakdown of what it is and how it works:

Aristotle defined a first principle as "the first basis from which a thing is known."

A first principle is a basic, foundational assumption—one that cannot be deduced or broken down any further.

First principles are foundational truths.


"First principles thinking”—or "reasoning from first principles”—is a problem-solving and innovation framework that requires you to break down a complex problem into its most foundational elements.

The aim: to ground yourself in the foundational truths and build up from there.

When we encounter challenging problems, our tendency is to rely on base level assumptions we have been told are true—or we believe to be true.

It's quick and easy to do.

But it also leads to unimaginative, linear solutions that closely resemble what has been done before.

This is called "reasoning by analogy”—it leads to solutions that are much like something else.

To be sure, it can be very useful when speed is the priority.

But it falls short when dealing with complex problems requiring creative, imaginative solutions.
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A paradox is a seemingly self-contradictory statement that proves true.

The most powerful paradoxes I’ve found:

The Paradox of Failure

You have to fail more to succeed more.

Our greatest moments of growth often stem directly from our greatest moments of failure.

Don’t fear failure.

Learn to fail smart and fast—never fail the same way twice.

Always put yourself in the arena.

The Paradox of Persuasion

Ever notice that the most argumentative people rarely persuade anyone of anything?

Persuasive people don’t argue—they observe, listen, and ask questions.

Argue less, persuade more.

Persuasion is an art that requires a paintbrush, not a sledgehammer.

The Paradox of Productivity

Work longer, get less done.

Parkinson's Law says that work expands to fill the time available for its completion.

When you establish fixed hours to work, you'll find unproductive ways to fill it.

Work like a lion instead—sprint, rest, repeat.

The Paradox of Effort

You have to put in more effort to make something appear effortless.

Effortless, elegant performances are simply the result of a large volume of consistent, effortful practice.

Small things become big things.

Simple is not simple.
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Thread on "The Final Checklist"
by Peter Lynch.

~ Ideas can come from anywhere - Peter Lynch.


~ If you can't find any companies that you think are attractive, put your money in the bank until you discover some - Peter Lynch.


~ All you need for a lifetime of successful investing is a few big winners, and the pluses from those will overwhelm the minuses from the stocks that don’t work out - Peter Lynch.


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🐦 Analyze viral Tweets

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1. Capture Overnight Theta Decay
2. Trading Opening Range Breakouts
3. Reversal Trading Setups
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6. NR4 + IB
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Check Bank Nifty at 3:15 everyday.

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Don't trade till 9:45 Am.

Identify the highest OI on puts and calls.

Check combined premium and put a stop on individual


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Bharat Darshana publishes a small monthly magazine which has some very interesting puranic anecdotes and snippets.

When I picked up this month's magazine, I was intrigued by a story which I want to share as below

1/

This is a real-life incident as narrated by Prof. Krishna Bihari Pandey titled "Sati Savitri"

Sati Savitri is a well known puranic figure from Srimad DeviBhagwatham and Mahabharatha as one of those who fought with Yama to save her husband.

2/

This story is a modern real-life experience which mimics the puranic account in it's own unique way.

The story occurs in 1975 with Prof and his wife in Delhi with professor working as a researcher in university. Prof's family is in Allahabad in a large joint family

3/

Once Prof gets to know that his mother is not keeping well. He goes to his native and brings his mother. With dedicated care of his wife, his mother recovers quite remarkably and regains full stamina and strength

Mother-in-law & Daughter-in-law go out for shopping frequently

4/

Life's going smooth until one day when they receive a telegram that Prof's father is not keeping well.

His mother is distressed about the situation and requests her son to take her to the native. Prof is a little angry due to frequent travels and turns it down

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Trump visits the Middle East and receives royal Saudi welcome, highest Saudi honour by receiving the golden collar of abdulaziz al Saud
Not been seen with past presidents ...


When trump arrived in the summer of 2017 14/09/2017 he laid out all the documents, all the folders and they had all the photographs, disks, cds, dvds with all footage of them doing horrific things, the NSA has it all!

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Today is Jayanti of Ahilyabai Holkar

She was a widow who became Malwa's greatest queen. Defended our country & personally led armies into battle.Never plundered anyone. Developed Malwa into a prosperous kingdom. Rebuilt temples destroyed by Mughals. Built Dharmashalas at Tirthas


Unfortunately, her memory has been blemished by inaccurate representations in modern popular media.

The serial "Punyashlok Ahilyabai" depicts her as ultra secularist feminazi icon who questions Hindu rituals & Pandits while patronising Sufis.

This is far from historical truth!


Ahilyabai was born on May 31 1725 to Patil Mankoji Shinde.

She was from Dhangar clan(classified as OBC today). While Dhangars were traditionally into herding, they took up arms & held several military /civil roles in various eras of history(especially during Maratha resurgence)


In 1737, when she was 12, Ahilyabai Holkar was married to Khanderao , son of Subedar Malhar Rao Holkar.

By the time she was married, fortunes of Holkar family had already waxed.

Malhar Rao was a Subedar of territory comprising 30 Parganas yielding a revenue of at least 7 Lakh


In 1741, when Ahilyabai was newly married, her father -in-law Malhar Rao Built Indore palace & ordered the kanungo to populate the settlement with a promise of protection to traders.

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Trump on climate: I don't believe it. Trump on Khashoggi: I don't believe it. Trump on Russia: I don't believe it. Idiocy? A canny game? Doesn't really matter as much as the underlying intellectual autocracy. In this administration only one opinion matters.

It's an assault on facts and reason. It's an assault on good governance. It's an assault on the bureaucracies that are being discounted. It's an assault on science and history. But it is also an assault on one of the underpinnings of democracy.

We live in a system that is grounded on the idea of collaborative government. Leaders may have a final word but even then, there are typically checks and balances. Hopefully, in this case, such checks and balances may work. But they also are being tested.

The president's position that he is smarter than all the world's scientists, than the entire intelligence community, than experts who have studied any issue all their lives, is, of course, asinine. But his belief that government turns solely on his opinion, is monarchic.

Louis XIV reportedly said, "L'etat est moi." That he was the state. Trump asserting that he knows better than all, discounts all advice, that his brain is enough to chart the course for America alone, is essentially saying the same thing.
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