If we believe the stock market is going to rise, then we tend to only seek out news and information that supports our view. This confirmation bias is a primary driver of the psychological investing cycle of individuals as shown below. We, therefore, attach credibility to their opinion as long as it confirms our own. Individuals assume that when the media publishes something, the superficial factors like the commentator’s job, education level, or other traits suggest they can’t possibly be stupid. In investing, the problem of investor “stupidity” is compounded by a variety of biased assumptions that are made. “No matter how many idiots you suspect yourself surrounded by you are invariably low-balling the total.” Law 1: Always and inevitably everyone underestimates the number of stupid individuals in circulation. Let’s take a look at Cipolla’s five basic laws of human stupidity as they apply to investing and the markets today. “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.” The result is that “stupidity” lowers society’s total well-being and there are no defenses against stupidity. they cause problems for others without apparent benefit to themselves.Cipolla explained, share several identifying traits: 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.
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