process
Judge the process, not the outcome
The rule
In a game with luck, a good choice can end badly and a bad one can end well. Judge the choice by how you decided, not by the one result you got.
Where it flips
But pushed too far, 'ignore the result' becomes never learning at all. Over many choices, a pattern of bad results is real proof the method is weak. One result is noise; a long run of them is a signal worth heeding.
Mauboussin warns that when luck plays a big part, one result tells you little about whether the choice was wise. Putting a bonus in all at once and then watching the market fall does not prove you were wrong. Spreading it out and then watching the market rise does not prove spreading was right. The future was unknown when you decided. Judging your entry by the chart that came after is a trap called outcome bias, and it teaches the wrong lessons. The real test is whether you decided well with what you knew at the time. A good way of deciding will still get unlucky sometimes. Rate the choice, not the dice.
A worked example
Two investors put in a ₹6,00,000 bonus. One does it all at once and the market drops. One spreads it and the market climbs. The chart rewards the second, but both faced the same unknown future. Only how they decided, not the result, tells you who chose well. [illustrative]
How to spot it
- ·the choice is judged against what could be known at the time
- ·one result is treated as noise, not proof
- ·no method is praised or blamed only by the chart that followed
Michael Mauboussin · research notes on process and outcome