With a wave of complexity and unknowns smashing into the financial and political worlds, the elegant simplicity of Occam's Razor is primed for a revival.
But what is Occam's Razor and how does it work?
Here's Occam's Razor 101!
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1/ Occam's Razor is a classic problem-solving principle and mental model.
It says that when you are weighing alternative hypotheses, the one with the fewest necessary assumptions should be chosen.
Put simply, the simplest explanation is often the best one.
Simple is beautiful.
2/ The benefits of Occam's Razor can be extensive.
Going with the hypothesis with the fewest number of necessary assumptions means it is easier to prove/disprove. There are fewer assumptions to vet in your process.
It allows one to follow the critical path to an outcome.
3/ The origin of the named concept is attributed to William of Ockham, an English friar, theologian, and philosopher. His simplified deductive reasoning led others to coin the term in his name.
But to be sure, the concept itself has been employed by great thinkers for centuries.
4/ Let's look at a few real-world examples of where Occam's Razor might be useful (and where it might get you in trouble).
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5/ Investing?
As @GavinSBaker often says, simple is beautiful when it comes to investing.
In developing perspectives on a company or industry, cut down to the critical assumptions or variables for determining the future state.
Remove the noise and you are left with the signal.
6/ This is a critical concept as it relates to developing true, differentiated insights and ultimately generating alpha.
7/ What about government financial crisis response?
Every crisis is different and complex. COVID-19 precipitated a truly unique financial meltdown.
But if you wanted to determine the government's likely response, the simplest answer was probably the best: they print money.
8/ With so many outstanding variables and assumptions, taking an Occam's Razor approach to determining government policy interventions in times of crisis may make sense.
When in doubt, they print, they bailout, and they kick the can down the road.
9/ But as with all mental models, Occam's Razor is far from perfect.
It is a great way to answer efficiently in the absence of an environment of complete information.
But it can get you into trouble if used too broadly, as @ShaneAParrish points out.
I think the whole “alcohol is poison” thing is too black and white.
Social connection is one of the most important factors for your physical health.
If having a beer with your friends promotes that connection, good for you.
If it doesn’t, also good for you.
The point: Do you.
I’ve personally reduced my alcohol consumption about 90-95%, but if I’m with a new or old friend and they want to share a drink of something special, I’m in.
Further, as a society, I think that we should worry less about the couple of beers we drink per month and more about the fact that we stare at phone screens all day, argue on social media with strangers, consume too much sugar, and are far more sedentary than our ancestors.
The silent productivity killer you've never heard of...
Attention Residue (and 4 strategies to fight back):
The concept of "attention residue" was identified by Dr. Sophie Leroy in 2009.
The idea is simple:
There is a cognitive cost to shifting your attention from one task to another. When our attention is shifted, a "residue" remains and impairs our performance on the new task.
It's relatively easy to find examples of this effect in your own life:
You get on a call but are still thinking about the prior call.
An email pops up during meeting and derails your focus.
You check your phone during a lecture and can't refocus afterwards.