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How The Sequel Bias Affects Our Investing Decisions And More

Sep. 28, 2020 8:38 PM ET
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Long Only, Growth At A Reasonable Price

Seeking Alpha Analyst Since 2016

Why is that every new movie these days seems to be either a sequel, reboot, or part of a franchise? Is Hollywood really that creatively bankrupt or money-grubbing, as the critics charge? To be fair, money probably does have a lot to do with it, but this phenomenon probably has more to do with our inherent cognitive biases.

People are naturally risk-averse, and producing an original work for public consumption is a risky endeavor. It costs a lot of money to market a movie; a few big flops can easily bankrupt a production company. If you’re a studio executive, it seems a lot safer to simply look at what worked before and do the same thing…just a little different this time.

The investing world isn’t that much different. I haven’t found a name for this cognitive proclivity, so I’ll call it the sequel bias: the tendency to seek opportunities similar to those that worked in the past.

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