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Herbert Simon: Scientific Research has much in Common with Successful Stock-Market Investment

This is a fascinating expert from How Managers Express Their Creativity” by Herbert Simon that deals with information flow within grounds and organizations. Simon compares successful scientific research with successful stock-market investing. Both scientists and investors are looking for mis-priced bets

In this respect, successful 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’re interested in learning more about Herbert Simon, I recommend reading Models of My Life. I’ve also written about Simon before (here, and here).