Avoid Casinos and Never Gamble
Past success can make associated habits, people, or strategies seem more reliable than they are. Examine what actually caused the success, what may have been luck, and which risks are different in the next undertaking.
THE IDEA
Avoid Casinos and Never Gamble
Charlie “To avoid being misled by the mere association of some facts with past success, use this memory clue. Think of Napoleon and Hitler when they invaded Russia after using their armies with much success elsewhere. There are plenty of mundane examples of results like those of Napoleon and Hitler. For instance, a man foolishly gambles in a casino and yet wins. This unlikely correlation causes him to try the casino again and again, and he wins more. This unlikely correlation causes him to try the casino again, and again, and again to his horrid detriment. Or a man gets lucky in some odds against a venture headed by an untalented friend. So influenced, he tries again what worked before with terrible results. The proper antidotes to being made such a patsy by past success are (1) to carefully examine each past success, looking for accidental, non-causative factors associated with what success that will tend to mislead as one appraises odds implicit in a proposed new undertaking, and (2) to look for dangerous aspects of the new undertaking that were not present when past success occurred lvi".
Peter: “Anyway it is very unusual for high society folks to be interested in literature and psychology. Ask Mr. Brown; it’s much more fun to read news on financial blogs.”
Charlie listened very carefully to what Peter had to say. He was for a moment surprised with the excellent manners of the young man, but he had to play kind, like a teacher, again. Just a waste of my time again; it is time to move away from here, Charlie was thinking.
Peter: “But you are mistaken if you think I am not successful, I am maybe not as excellent as you. I consider myself as well informed, a man of action, not as straightforward as you do—more indirect. I might not be as polite, and I have myself made many mistakes. I am not so perfectly dressed. Peter’s face displayed irony, even self-pity and envy; he spoke with emotion, sometimes being unable to finish his long sentences, losing control of himself. “And yes, I am totally the opposite of you. I like to overspend my income. So what?”
Mr. Brown interrupted Peter: “Look, Peter, don’t be aggressive toward Charlie. You envy him, right? Is envy good, Charlie? Don’t you think it stimulates you? You work harder. What about self-serving bias, Charlie?”
When to use it
Evaluating investment decisions where past performance may not predict future results.
Avoiding repeated gambling or betting behavior after an initial win.
Reviewing business strategies that worked previously but may not apply to a new market or context.
Assessing personal career moves by separating luck from skill in past achievements.
FROM THEORY TO EVERYDAY LIFE
In practice
The Casino Gambler
A man foolishly gambles in a casino and wins. This unlikely correlation causes him to try the casino again and again, and he wins more. Eventually, he continues to his horrid detriment, mistakenly believing that his past success will repeat despite the odds.
The Lucky Venture
A man gets lucky in a venture headed by an untalented friend. Influenced by this success, he tries again with similar conditions and suffers terrible results, ignoring the accidental non-causative factors that contributed to the first success.
A MOMENT TO REFLECT
Put it to work.
Recall a time when you repeated an action based on past success. What accidental non-causative factors might have been present?
How can you systematically examine a past success to distinguish causative factors from mere association?
When considering a new undertaking, what dangerous aspects might be present that were not in your past successes?
CONTINUE THE CONVERSATION
Source texts
- The Art of Being Rational Charlie Munger