The Fallacy of Comparison

By: William Buist on : 5th August 2015: Business articles, Fallacies: No Comments

In 2008 the British Government was forced by economic necessity to buy shares in Royal Bank of Scotland to stop it going bust. It wasn’t an investment, it was a rescue. In 2015 the government started to sell those shares. There was criticism that the price being received was less than that paid.

Even if it had been an investment, does the initial purchase price have any relevance in determining when to choose to sell an asset and realise its value?

Imagine two investors, one who bought a stock below the price a year ago, one above. When we look back now we see the price fell significantly. Both should have sold. If we see the price has risen, with should have held on. The reality is that the future price is uncertain, making decisions about selling can’t take account of what asset values *might* do, they can only take account of what they are.

This is the fallacy of comparison.

Can we tell if the government is selling at the right time? No, and there’s another fallacy, that of hindsight, that may lead us either to applaud or vilify the choice when we can see what actually happens. That too would be a mistake, because the choice has to be made without that information.



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