Margin Of Error Thinking

It makes sense to build a “margin of error” into your decision-making process. What this means is that you consider that you might be wrong and adjust your actions accordingly.

In the investment world that means buying shares at a lower price than you think they’re worth. That way if you’re wrong you won’t lose as much money. This way of think translates well into other areas of life.

Such as diet. Conventional wisdom used to be that you should consume a low-fat diet. The result was that people over-consumed carbs. Now conventional wisdom is that you should consume more of a high-fat/low-carb diet. Well, what if conventional wisdom is wrong again? Maybe low-fat and high-fat are both unhealthy. Maybe moderation is a better idea, just to be safe.

Or maybe it’s best not to argue a point too forcefully. Maybe you’re being over-confident, not considering that you might be at least partially wrong.

Individuals (laypeople and experts), companies, governments, educational institutions, religious institutions, peer-reviewed journals, etc. — they all get it wrong sometimes. Sometimes terribly wrong.

Allowing for a margin of error can help prevent that from happening.