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Alternative Market Briefing

Comment: Five Universal Laws Of Human (Investment) Stupidity

Monday, May 15, 2017

Matthias Knab, Opalesque:

Real Investment Advice writes on Harvest Exchange:

In 1976, a professor of economic history at the University of California, Berkeley published an essay outlining the fundamental laws of a force he perceived as humanity's greatest existential threat: Stupidity. Stupid people, Carlo M. Cipolla explained, share several identifying traits:

  • they are abundant,
  • they are irrational, and;
  • they cause problems for others without apparent benefit to themselves
The result is that "stupidity" lowers society's total well-being and there are no defenses against stupidity. According to Cipolla:

"The only way a society can avoid being crushed by the burden of its idiots is if the non-stupid work even harder to offset the losses of their stupid brethren."

Let's take a look at Cipolla's five basic laws of human stupidity as they apply to investing and the markets today.

Law 1: Always and inevitably everyone underestimates the number of stupid individuals in circulation.

"No matter how many idiots you suspect yourself surrounded by you are invariably low-balling the total."

In investing, the problem of investor "stupidity" is compounded by a variety of biased assumptions that are made. Individuals assume that when the media publishes something, the superficial fac......................

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