Why a little knowledge can be a dangerous thing: The importance of validating anecdotes and generalisations
For property investors, cognitive shortcuts are necessary tools. They enable us to process the infinite complexity that comes with assessing the differences among investments. However, we need to be aware of their limitations.
The two main forms that these shortcuts take are sweeping generalisations and the extrapolation of anecdotal evidence. We encounter examples of these daily, and most of us use such constructs ourselves. But how often do we check the validity of these simplifications? Or do we instead inadvertently practice confirmatory bias, seeking to support our presumptions?
One all-too-common generalisation is the supposed correlation of real estate returns with interest rates — an assumption that we frequently hear from even seasoned members of our community.