The Power of the Outside View: Looking Beyond Our Own Perspective
The Concept of Base Rates I recently came across an interesting concept called the “outside view” while watching a lecture by Michael Mauboussin, a finance professor at Columbia Business School. He talked about the idea of base rates, which is particularly relevant in the context of financial investments. When researching a company, many smart people try to create their own model. For example, they might look at a company like Adidas and develop a discounted cash flow model. Based on their analysis, they might predict that the company’s market cap will double in 3-5 years. ...