Talking heads on financial media often sound confident about topics involving the inherently unknowable future. But then, the media wouldn’t invite folks who rightly demonstrate ignorance of the future. Not just the media, in general, we all prefer to listen to those who speak confidently. Turns out, confidence is directly proportional to ignorance. This was popularised as the Dunning-Kruger effect. This is an essay from a decade ago by David Dunning, a social psychologist, citing several studies which underpinned the paper he wrote in 1999 with his student Justin Kruger, which led to the naming of the concept after them. (here’s another lovely piece on the subject we featured in the past)

“For more than 20 years, I have researched people’s understanding of their own expertise—formally known as the study of metacognition, the processes by which human beings evaluate and regulate their knowledge, reasoning, and learning—and the results have been consistently sobering, occasionally comical, and never dull.

The American author and aphorist William Feather once wrote that being educated means “being able to differentiate between what you know and what you don’t.” As it turns out, this simple ideal is extremely hard to achieve. Although what we know is often perceptible to us, even the broad outlines of what we don’t know are all too often completely invisible. To a great degree, we fail to recognize the frequency and scope of our ignorance.

In 1999, in the Journal of Personality and Social Psychology, my then graduate student Justin Kruger and I published a paper that documented how, in many areas of life, incompetent people do not recognize—scratch that, cannot recognize—just how incompetent they are, a phenomenon that has come to be known as the Dunning-Kruger effect. Logic itself almost demands this lack of self-insight: For poor performers to recognize their ineptitude would require them to possess the very expertise they lack. To know how skilled or unskilled you are at using the rules of grammar, for instance, you must have a good working knowledge of those rules, an impossibility among the incompetent. Poor performers—and we are all poor performers at some things—fail to see the flaws in their thinking or the answers they lack.

What’s curious is that, in many cases, incompetence does not leave people disoriented, perplexed, or cautious. Instead, the incompetent are often blessed with an inappropriate confidence, buoyed by something that feels to them like knowledge.”

Dunning highlights that none of us are immune to this:

“Because it’s so easy to judge the idiocy of others, it may be sorely tempting to think this doesn’t apply to you. But the problem of unrecognized ignorance is one that visits us all. And over the years, I’ve become convinced of one key, overarching fact about the ignorant mind. One should not think of it as uninformed. Rather, one should think of it as misinformed.

An ignorant mind is precisely not a spotless, empty vessel, but one that’s filled with the clutter of irrelevant or misleading life experiences, theories, facts, intuitions, strategies, algorithms, heuristics, metaphors, and hunches that regrettably have the look and feel of useful and accurate knowledge. This clutter is an unfortunate by-product of one of our greatest strengths as a species. We are unbridled pattern recognizers and profligate theorizers. Often, our theories are good enough to get us through the day, or at least to an age when we can procreate. But our genius for creative storytelling, combined with our inability to detect our own ignorance, can sometimes lead to situations that are embarrassing, unfortunate, or downright dangerous—especially in a technologically advanced, complex democratic society that occasionally invests mistaken popular beliefs with immense destructive power (See: crisis, financial; war, Iraq). As the humorist Josh Billings once put it, “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.” (Ironically, one thing many people “know” about this quote is that it was first uttered by Mark Twain or Will Rogers—which just ain’t so.)”

Why are we humans as a species like this? Dunning goes on to postulate reasons ranging from evolution to acquired misbeliefs, one can read about in the essay. But more importantly, what can we do to guard ourselves against this bias?

“How can we learn to recognize our own ignorance and misbeliefs? To begin with, imagine that you are part of a small group that needs to make a decision about some matter of importance. Behavioral scientists often recommend that small groups appoint someone to serve as a devil’s advocate—a person whose job is to question and criticize the group’s logic. While this approach can prolong group discussions, irritate the group, and be uncomfortable, the decisions that groups ultimately reach are usually more accurate and more solidly grounded than they otherwise would be.

For individuals, the trick is to be your own devil’s advocate: to think through how your favored conclusions might be misguided; to ask yourself how you might be wrong, or how things might turn out differently from what you expect. It helps to try practicing what the psychologist Charles Lord calls “considering the opposite.” To do this, I often imagine myself in a future in which I have turned out to be wrong in a decision, and then consider what the likeliest path was that led to my failure. And lastly: Seek advice. Other people may have their own misbeliefs, but a discussion can often be sufficient to rid a serious person of his or her most egregious misconceptions.”

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Note: The above material is neither investment research, nor financial advice. Marcellus does not seek payment for or business from this publication in any shape or form. The information provided is intended for educational purposes only. Marcellus Investment Managers is regulated by the Securities and Exchange Board of India (SEBI) and is also an FME (Non-Retail) with the International Financial Services Centres Authority (IFSCA) as a provider of Portfolio Management Services. Additionally, Marcellus is also registered with US Securities and Exchange Commission (“US SEC”) as an Investment Advisor.



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