When Can You Generalize From a Specific Experience? Do We Discount Unusual Events Often Enough?

One of the trickiest things for me to figure out is when I can generalize from a specific experience versus dismissing it as an outlayer.

Take a CEO. He starts his first company. He employs certain management techniques, strategies, and protocols. The company is wildly successful. He moves on and starts his second company. Naturally, he will generalize from his past experience and do what he did before. Maybe it will work out, maybe not. Were the circumstances at the first company representative of circumstances most new companies encounter? Maybe, maybe not.

It is hard, for example, to generalize from successes or failures during the dot-com boom. If you built a company in 1998 and slowly and steadily hired employees and focused on long term viability of the business, you probably would have been deemed a failure, VCs might have ignored you, and so forth. Does this mean you should carry this experience with you as the wrong way to grow a business? Of course not. The dot-com bubble was crazy and unique.

That’s an easy example. It’s harder if we look at the micro level. For instance, one of the very first sales pitches I did (pitching enterprise software to government organizations) was a total disaster. The prospect was unresponsive. The format of the pitch didn’t flow. I could have abandoned it, but fortunately I didn’t. I stuck with it, and it worked out more times than not. As a first-time entrepreneur, however, it was tempting to let any single, new experience have outsize impact on me.

There are a bunch of interesting cognitive biases that are at play here — for example, the recency effect multiplies the impact of recent events versus old events. This is irrational: we shouldn’t let something that happened yesterday seem vastly more important than something that happened last week.

So the dilemma is this: When can we transfer knowledge and experience from one event to another? When are lessons of an experience transferable? I would argue we generally overestimate the transferability of experiences and do not discount unusual events often enough.

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