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Can More Information Lead To Worse Investment Decisions?

FYI: It is without question that investors now have easy access to more information than ever to guide decision making; optically, this surfeit of data appears to be a positive – who doesn’t want more ‘evidence’ to inform their judgements? Yet there are a number of potential drawbacks, most notably the challenge of disentangling signals from a blizzard of noise in order to make consistent decisions. For this post, I want to specifically address the potential consequences of information growth and its impact on our precision and confidence levels. Whilst we often believe that more information can improve our accuracy (the number of correct decisions we make), in certain situations all it may be doing is increasing our (unfounded) confidence.
Regards,
Ted
https://behaviouralinvestment.com/2019/01/09/can-more-information-lead-to-worse-investment-decisions/

Comments

  • Hi Guys,

    Does more data always deliver better decisions?

    My answer may seem cowardice, but I believe there is no simple, single reply. It depends. It depends not on the quantity of data, but much more significantly on its quality, it's accuracy, it's relevance to that special decision process, and it also requires that a final decision is actually made. We need to pick carefully and select data that actually has an impact. In investing, those meaningful data for prediction purposes have not been uniformly defined. The debate continues in that arena.

    Actual controlled experiments with vested interest people have been conducted for decades to establish that decision accuracy is a weak function of information quantity, but it surely enhances our confidence levels. What we know and what we thing we know are two very distinct quantities. This is especially true for financial matters where projected outcomes,are so very uncertain. Black swans happen all too frequently. That's one reason why luck is such an important factor that dominates investment outcomes. That's not too comforting an observation, but far too true. Good luck to all of us.

    Best Wishes
  • According to the "Delusions" article by Josh Brown linked yesterday I'd have to agree with you MJG in saying not so much.

    https://thereformedbroker.com/2019/01/09/delusions/
  • edited January 10
    Adam Smith's invisible hand works in mysterious ways. And, the more sophisticated we become, the more it enjoys the challenge of the game!

    image
  • Knowledge is power.

  • Yes. You can get caught in 'analysis paralysis' ... which is why I no longer have indicators on my charts when investing AND when trading futures. If I do use them (ie, a moving average) it's moreso to get a sense of where the 'herd' or 'market' sees things, but I don't trade off of them.

    The markets are both an art and a science. I daresay it's more of an art, but ppl want 'precision' and thus try to scientific-ize it with indicators and over-analysis of things.
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