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Chilcot's lessons

First, beware of peer pressure. Chilcot reports Blair as telling Bush: "I will be with you, whatever", and that he thought it "essential" to stand "shoulder to shoulder" with the US. However, while loyalty to one's friends is a virtue, it can lead us to make poor decisions. For example, Hans Hvide has found that people invest in the same stocks as their colleagues although doing so loses them money; Dutch researchers have found that we spend more money if our neighbours do so; and US economists have found that companies are more likely to commit fraud if neighbouring ones do.

Second, question the data. Chilcot complains that the government did not acknowledge "the limitations of the intelligence." There is, he says, a "need for vigilance to avoid unwittingly crossing the line from supposition to certainty". It's not just politicians who should heed this. For many of us, information is subject to an endowment effect: we overvalue it simply because we have it and thus become overconfident. To correct for this, remember that the information you have is only a subset of all possible facts, and ask: what is missing? In what ways might this sample of the facts be biased?

Third, beware of salient but irrelevant information. Chilcot says there were no links between Iraq and the 9/11 attacks. Those attacks, however, added to the sense that the west was under attack. Again, investors are also prone to this mistake. Economists call it 'noise trading', which can distort prices. The remedy here is to ask: does how much predictive power does this data have? Often, the answer is: little or none.

Fourth, the timing of decisions matters. Chilcot says war was "not a last resort" and reports that Mr Blair's generally liked to "move fast" when making decisions. This contradicts a prediction of real options theory - that delaying big decisions can be sensible because doing so can reduce uncertainty. This isn't always the case: it's a good idea to start contributing to a pension early, and sometimes delaying means missing out on bargains. But other decisions - especially those that are hard to reverse such as moving house or retiring - are often best postponed if doing so allows you to gather more information and so be more certain about them.

Fifth, beware of the confirmation bias. Chilcot says Blair dismissed Hans Blix's belief that "perhaps there was not much WMD in Iraq after all" because he had already made his mind up. We are all prone to this: Ed Glaeser and Cass Sunstein describe what they call "asymmetric Bayesianism" - a tendency to downgrade evidence that contradicts our beliefs. This isn't always a bad thing: sometimes our prior beliefs are right and new evidence is weak. But it can be costly for investors as well as prime ministers as it can cause us to hold onto bad stocks in the mistaken belief that we were right to buy them, despite evidence to the contrary.

Sixth, don't trust decisions taken for symbolic or signalling reasons. Chilcot says Blair feared that not attacking Saddam would signal to future tyrants that the west was feeble. This is a reasonable concern. But it can lead us into actions which, considered in isolation, are costly. Again, some investors are prone to this. Researchers at the University of Alicante show that people hold onto bad shares because they hate admitting (even if only to themselves) that they were wrong. Worrying about your image - even if only your self-image - can be expensive.

Seventh, don't assume that others know what they're doing. Chilcot says the Blair government thought that British troops would be withdrawn from Iraq soon after the war because it assumed that the US and UN had a post-conflict plan for the country. This mistaken assumption that others know best can also afflict financial markets. Brock Mendel and Andrei Shleifer have described how mortgage securities were overvalued in the mid-2000s because investors assumed that other investors had a sensible view of their quality. They didn't. Similarly, financial markets were wrong-footed by the vote to leave the EU because they assumed that betting markets were right. They weren't.

Eighth, remember that the present and future won't resemble the past. Chilcot says: "The judgements about Iraq's capabilities and intentions relied too heavily on Iraq's past behaviour being a reliable indicator of its current and future actions. There was no consideration of whether, faced with the prospect of a US-led invasion, Saddam Hussein had taken a different position." This is the same mistake banks made in the mid-2000s; they assumed that the stability of previous years was a reliable indicator of future stability, and so took on lots of risk. Equally, investors who assumed that the 2010-16 outperformance of small and mid caps would continue have had a nasty surprise recently.

Finally, beware of wishful thinking. "Overoptimistic assessments lead to bad decisions," says Chilcot. Again, investors make this mistake. Guy Mayraz at the University of Melbourne has shown that mere ownership of an asset leads us to overestimate its future returns. And it's easy to believe that we can get out of risky assets before their prices fall even if this is not actually the case, as holders of some property funds have discovered this week.

In all these ways, the Chilcot report is more than just a long-delayed post mortem on history. It is a manual for us all on how to avoid common but costly mistakes. The fact that the nation is, yet again, embarking upon a costly and ill-planned venture based upon wishful thinking and shoddy evidence suggests that these lessons have not yet been learned in politics: as Karl Marx said, "History repeats itself, first as tragedy, second as farce". Investors, however, should do better than voters or politicians by learning from Chilcot.