You Have To Live It To Believe It

You Have To Live It To Believe It

Apr 9, 2019 by Morgan Housel

Richard Held and Alan Hein raised 20 kittens in pitch black darkness. Which is the kind of thing you should only do if it’s necessary to prove a point critical to understanding how the world works. Thankfully they did just that. The two MIT cognitive scientists, working in the 1960s, showed that seeing the world around you was not enough to understand how it works. You had to actually experience that world to learn how to operate in it.

The scientists raised cats in total darkness to control the relationship between seeing and learning. Once a pair of kittens were old enough to walk, they were placed in a lighted box for three hours a day.

In the box was a kind of carousel, with each kitten placed in a harness. One of the cat’s legs reached the floor, and its walking movements made the carousel move in a circle. The other cat’s legs were restrained by the harness. It could see everything going on – the movement, the other cat walking around in circles – but its legs never touched the floor. It had no active control over the carousel.

After eight weeks of daily carousel walks the cats were brought into the real light-filled world to test what they had learned. They were tested to see if they’d automatically place their paws on a surface they were about to be set down upon. And if they’d avoid a steep ledge, walking around to a gradual ramp instead. And whether they’d blink when an object was quickly brought close to their face. The results were extraordinary. 100% of the cats whose legs had control over the carousel’s movements tested normal. The cats who only watched, but never controlled, the carousel were functionally blind.

They bounded towards the steep ledge and fell straight off. They didn’t put their paws out to land on a surface. They didn’t blink when an object accelerated toward their face. It wasn’t that they couldn’t operate their bodies – they learned to do that in the dark room they were raised in. But they couldn’t associate visual objects with what their bodies were supposed to do.

The two cats grew up seeing the same thing. But one experienced the real world while the other merely saw it. The result was that one was normal; the other was effectively blind.

One of the most important topics in business and investing is whether all of us are, in some ways, like these blind cats.

Sure, we’ve read about the Great Depression. But most of us didn’t live through it. So can we actually learn lessons from it that make us better with our money?

Sure, we all know about the 2000 dot-com bust. But many – maybe most – investors and founders weren’t active back then. So do they actually understand the power of bubbles as well as those who did live through it?

My generation, the millennials, has never experienced significant inflation. We can read about gasoline lines of the 1970s and 15% mortgage rates in the 1980s. But am I as concerned about monetary policy as the Baby Boomer who does remember those things? And is the Baby Boomer as concerned as the Venezuelan who’s experienced hyperinflation? The answer to these questions is – at best – maybe.

I say it’s one of the most important topics because it affects everyone. What I’ve experienced as an investor is different from what you’ve experienced, even if we’re from the same generation. And the generation and country you’re born into, the values instilled in you by your parents, and the serendipitous paths we all wander down are out of our control.

Investor Michael Batnick says, “some lessons have to be experienced before they can be understood.” We are all victims, in different ways, to that truth.

This report digs into the effect difference experiences we’ve had have on our ability to make smart decisions about business and investing risk.

Part 1: Blind Spots

Two events shaped the 20th century: The Great Depression and World War II.

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(A lengthy read but very intelligent - informative and interesting )

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