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Consilient Observer
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December 13, 2023

Pattern Recognition: Opportunities and Limits

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December 13, 2023

Pattern Recognition: Opportunities and Limits


Consilient Observer

Pattern Recognition: Opportunities and Limits

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December 13, 2023

 
 
  • We explore the powers and perils of pattern recognition, which investors often cite as a basis for action.
  • While it can be powerful when applied appropriately, it can also be misleading and lead to overconfidence.
  • We define pattern recognition, discuss when it tends to work well, review why it may be misleading, and offer ways to help improve it.
  • Pattern recognition tends to work well in stable environments where cause and effect are clear and feedback is effective but poorly where causality and feedback are limited.
 
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