Over a short time increment, one observes the variability of the portfolio, not the returns. In other words, one sees the variance, little else. I always remind myself that what one observes is at best a combination of variance and returns, not just returns (but my emotions do not care about what I tell myself).

Why do they confuse probability and expectation, that is, probability and probability times the payoff? Mainly because much of people’s schooling comes from examples in symmetric environments, like a coin toss, where such a difference does not matter. In fact, the so-called bell curve that seems to have found universal use in society is entirely

They are totally free from their past actions. Every day is a clean slate.

Post hoc ergo propter hoc (it is the consequence because it came after).

The fact that the losses hurt more than the gains, and differently, makes your accumulated performance, that is, your total wealth, less relevant than the last change in it.

Studies of the dynamics of networks have mushroomed recently. They became popular with Malcolm Gladwell’s book The Tipping Point, in which he shows how some of the behaviors of variables such as epidemics spread extremely fast beyond some unspecified critical level.

They become investors “for the long haul” when they are losing money, switching back and forth between traders and investors to fit recent reversals of fortune.

We will ignore the basic misuse of Darwinian ideas in the fact that organizations do not reproduce like living members of nature—Darwinian ideas are about reproductive fitness, not about survival.

A small knowledge of probability can lead to worse results than no knowledge at all.