Probabilistic Thinking and the 80/20 Rule

The human brain is inherently bad at dealing with probabilities. This is largely evident in the field of investing where investors try to handicap companies as potential investments, especially in the face of uncertainty. Investors should strive to improve their cognition of probabilities and operate with a frame of mind that helps to compensate for our wiring at birth. As well, investors need to avoid information overload, a few key variables is all one needs to handicap the odds of an investment’s success or failure.