“What happened to that hedge fund shows that when you’re really right, you always overstay the position and that’s when you get murdered. It’s better not to be right so much.”
It’s a lovely quote, and so spot-on. Diane Vaughan called it “normalization of deviance” in her classic book on the sociology of risk, but the gist is the same: Humans who are rewarded too often for taking ill-understood risks (or at least are not penalized) normalize the risk, and then take on even more risk. One day, of course, the whole edifice almost inevitably comes crashing down, sometimes literally, as in the case of the low-temperature launch of the space shuttle Challenger, which is Vaughan’s subject.