While most people recognize that it is hard to construct a portfolio that beats the S&P 500, most people don’t know how hard it is to build a portfolio that will do a lot worse than the benchmark.

Correlation is crucial in diversifying a portfolio and, hence, in managing risk.

That said, experts remain vital in three capacities. First, experts must create the very systems that replace them.

One common and conspicuous error in dealing with complex systems is betting too much on a particular outcome.

the man who recognizes that wearing a seat belt improves safety but who doesn’t do it. To reduce the dissonance, he may rationalize the decision by noting the seat belt is uncomfortable or by claiming that his above-average driving ability will keep him from harm’s

process. Feedback based only on outcomes is nearly useless if it fails to distinguish between skill and luck.

institutional imperative to explain the tendency of organizations to “mindlessly” imitate what peers are doing. There are typically two underlying drivers of the imperative. First, companies want to be part of the in-group, much as individuals do. So if some companies in an industry are doing mergers, chasing growth, or expanding geographically,

This idea introduces our third decision mistake, inappropriately relying on intuition. Intuition can play a clear and positive role in decision making. The goal is to recognize when your intuition will serve you well versus when it will lead you astray.

An incentive is any factor, financial or otherwise, that encourages a particular decision or action.