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Investing, Science|Reading Time: < 1

The Hidden Link Between Scientific Research and Investing

This is a fascinating expert from “How Managers Express Their Creativity” by Herbert Simon that deals with the value of information.

Simon compares successful scientific research with successful stock-market investing. What do they have in common?

Both scientists and investors are looking for mispriced bets.

[S]uccessful scientific research has much in common with successful stock-market investment. Information is only valuable if others do not have it or do not believe it strongly enough to act on it. The investor pits his knowledge, beliefs and guesses against the knowledge, beliefs and guesses of others.

In neither domain—science or the stock market—is the professional looking for a “fair bet.” On the contrary, he or she is looking for a situation where superior knowledge—knowledge not yet available to others—can be made, with some reasonable assurance, to pay off.

Sometimes that superior knowledge comes from persistence in acquiring more “chunks” than most others have. Sometimes it comes from the accidents that have already been mentioned. But whatever its source, it seldom completely eliminates the element of risk. Investors and scientists require a “contrarian” streak that gives them the confidence to pit their knowledge and judgment against the common wisdom of their colleagues.

If you want to learn more about Herbert Simon, I recommend reading Models of My Life.

Read Next

Next Post:The Inevitable Failure of Organizational Planning A beautiful excerpt from Herbert Simon’s Strategy and Organizational Evolution: Anticipating the future means detecting, preferably …

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