The Dog That Didn’t Bark

Experience can mislead us.

We seldom consider all of the things in a given situation that could have but did not happen.

Suppose, given a certain set of circumstances, that three things could happen. A a very good result, with probability 5%, B a moderately bad result, with probability 35%, and C an okay result, with probability 60%

If the circumstances arose a thousand times we would expect to discover something around A – 50 times, B – 350 times, and C – 600 times. Easy enough.

Not everything that happens should have happened. Sometimes the probability of some outcome other than the one you saw, is vastly higher than you think. The dog that didn’t bark. Does it affect your next decision?

Experience is about what happened.

The general case is not always an easy thing to know. People are sometimes exposed to situations that they never see again. They don’t get a sense of the problem and its possibilities.

Suppose you had been exposed to the experience possibility above and your were presented with outcome A. just one chance in 20 that would happen, but it did for you and it forms part of your experience set. If you stop there, would your advice about dealing with the circumstances be helpful for others? Maybe not. It might not be helpful for you if the circumstances ever arise again.

 

Experience is useful

Useful expereince includes what did not happen, at least to you.

You want experience in context of all the possibilities. If you don’t know all the possibilities and the outcome matters to you, you should acquire other people’s experience. If someone deals with the subject matter all the time, they will have a much clearer understanding of the possibilities, and they will know about nuance that affects the results.

An income tax specialist might know clearly about the 5-35-60 mix, and will know hot to avoid B, and have a chance at A. That would be useful. Better yet, they might know a way to modify the circumstances so there is a better expectation of success. That’s what tax planning is about – modifying the circumstances within the rules.

For example, many years ago we imported devices to manage energy use in a building. Essentially a smart thermostat. If we imported thema s building materials, the duty rate was 13%. If we imported them as semiconductor control devices, it was 5%. You can’t figure that out as you drive to work

You cannot know everything

You also can’t know when what you used to know changed. Specialists keep up to date. Life is easier if you buy experience when the event is uncommon. That’s what lawyers do. How many times have you incorporated a business. Few. You don’t get good at doing things once.

The takeaway

On average, when outcomes matter, other people’s experience is the cheapest experience.

Know when adverse outcomes are possible. Be aware that, in the past,  you might have seen only the improbable outcome. Experienced people will know that, you will not.

Experienced people have details to support their methods. Like the right wording in a trust, or a will. Details minimize catastrophic outcomes.

Remember Jim Ling’s Law – “I was right twelve times and only wrong once.” Lucky streaks last but not forever.

Older people don’t fully trust experience. They have seen variability.

{Pay attention to what happens around you and study what has happened before in similar situations. History teaches. It doesn’t repeat exactly but as Mark Twain has said, “it rhymes.”

It’s like other skills. Practice does not make perfect. perfect practice makes perfect. Experience is not the key to success. Well studied and observed experience is.

The most dangerous belief – “This time is different.”

Be more humble.


I help people have more retirement income and larger, more liquid estates.

Call in Canada 705-927-4770, or email don@moneyfyi.com

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