New Paper from Mauboussin: IQ versus RQ, Differentiating Smarts from Decision-Making Skills

“We think, each of us, that we’re much more rational than we are. And we think that we make our decisions because we have good reasons to make them. Even when it’s the other way around. We believe in the reasons, because we’ve already made the decision.” —Daniel Kahneman

A new paper is out from Mauboussin and Callahan, both currently at Credit Suisse.

Warren Buffett is quoted in the introduction of the paper.

Warren Buffett has plenty of horsepower and output. But when asked about his success, Buffett emphasized that it was RQ that made the big difference, not IQ:

How I got here is pretty simple in my case. It’s not IQ, I’m sure you’ll be glad to hear. The big thing is rationality. I always look at IQ and talent as representing the horsepower of the motor, but that the output—the efficiency with which that motor works—depends on rationality. A lot of people start out with 400-horsepower motors but only get a hundred horsepower of output. It’s way better to have a 200-horsepower motor and get it all into output.

Click image to download PDF. Also, the Mauboussin link post will be updated to include this one to.

IQvsRQ

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