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Howard Marks: I don’t want to be the Parachute Ejector with a 98% success rate

In the latest Oaktree ‘Insight’, Howard Marks and Annie Duke discuss the importance of intellectual humility and the need to consider alternative outcomes when making decisions. Marks argues that most people focus on their expected outcome and neglect the potential for negative consequences. He calls for a cautious approach that highlights the need to consider the worst-case scenario and ensure it can survive.

And I think that you have to have a sense for whether there are outcomes that you can’t survive. Annie mentioned the importance of expected value and calculating the expected value of something is one of the first decision tools we learn.

You multiply each outcome by its probability and then you get a weighted outcome, which is considered the expected outcome. […] And what do you do if the expected outcome is very good, but the possible outcome, under some adverse cases, is not survivable? Then what do you do?

You know, I always say that I don’t want to be the skydiver who was successful 98% of the time. That skydiver has a very, very high expected value, but it’s not a role for me. So what if I’m wrong, really, is a big help.

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