Suraj was having a major surgery and he was meeting with Dr Ajay, one of the most experienced and well regarded doctor, for a consultation. Suraj asked Dr Ajay about the chances of success in his case. Dr Ajay was very reassuring and told him that his chances were very good.
Pavan was fighting a complex legal case and he was asking his lawyer Mr Ravi, one of the leading legal minds, about the chances of their victory. Mr Ravi agreed the case was complex but Pavan’s chances of winning were very good.
Mr Murthy hired a very experienced project manager Nandan to run a large software project. It was running slightly behind schedule. When Mr Murthy had a meeting with Nanadan, Nandan reassured that they were going to catch up soon and will be able to deliver on time.
If we see here Suraj, Pavan, and Mr Murthy have come back with a reassurance but not any useful information. They were all talking to some of the best experts who were well meaning and doing everything they can to deliver on their promises. We all know that there are cases where surgeries are not successful, legal cases don’t pan out the way the litigants expect, and almost all large projects – over run their time and budget (examples can be stadiums for Common Wealth games, Football world cup, Terminal 3, Berlin Airport etc etc).
Dr Ajay, Mr Ravi, and Nandan are very experienced in their field and upright individuals. Are they lying to their clients ? Mostly probably not. They genuinely believe the things they are saying.
How is it that these experts are unable to provide appropriate guidance? In these cases they may be too close to the issue and they are not seeing objectively. Also the questions they are being asked may not be right ones to solicit useful information by leveraging their expertise.
Let’s first try and look at why the experts are not being objective –
Chip Heath says in his book “Decisive” –
- “People think they know more than they do about how the future will unfold.”
- “We have too much confidence in our own predictions. When we make guesses about the future, we shine our spotlights on information that’s close at hand, and then we draw conclusions from that information”
“A remarkable aspect of your mental life is that you are rarely stumped,” said Daniel Kahneman, a psychologist who won the Nobel Prize in economics for his research on the way that people’s decisions depart from the strict rationality assumed by economists.
David Brooks says in his book “The Social Animal” – “The human mind is an overconfidence machine. The conscious level gives itself credit for things it really didn’t do and confabulates tales to create the illusion it controls things it really doesn’t determine. Ninety percent of drivers believe they are above average behind the wheel. Ninety-four percent of college professors think they are above-average teachers. Ninety percent of entrepreneurs think that their new business will be a success. Ninety-eight percent of students who take the SAT say they have average or above-average leadership skills.”
William J. Bernstein said in his book “The Four Pillars of Investing” – The longer the “feedback loop,” or the time-delay, between our actions and the results, the greater our overconfidence.
Does this mean that we should not be talking to the experts? The answer is a clear No. When we need trustworthy information, we should find an expert—someone more experienced than us. But we must ask them about the past and the present, not the future. Experts have a great understanding of the averages and some of the correlations. The key is to ask about the information they have and understand various scenarios. Trying to understand the future is not about trying to pin point an outcome but to understand the range of possibilities. This way one will comeback armed with actionable information.
Suraj would be have more actionable information if he asked Dr Ajay about the percentages or patients who had complications, the nature of complications and the conditions in which the complications arose etc. Pavan would be better-off asking Mr Ravi about the success rates in various cases, types of cases where there was an adverse verdict, information that would be required to make a more solid case. Mr Murthy can ask Nandan about the percentage of projects in similar situations that fell behind, reasons for the delays, the early warning signs that one should look out for and interventions that were effective etc.
Investing is one field where there are umpteen number of experts. All we have to do is to turn on the television and all finance channels are having experts who are making clear and precise predictions of how the markets are going to pan out from one moment to another.
William J. Bernstein had some very interesting things to say about this in his book “The Four Pillars of Investing” – “It is said that there are only two kinds of investors: those who don’t know where the market is going and those who don’t know that they don’t know. But there is a rather pathetic third kind—the market strategist. These highly visible brokerage house executives are articulate, highly paid, usually attractive, and invariably well-tailored. Their job is to convince the investing public that their firm can divine the market’s moves through a careful analysis of economic, political, and investment data. But at the end of the day, they know only two things: First, like everybody else, they don’t know where the market is headed tomorrow. And second, that their livelihood depends upon appearing to know.”
An investor is better off in trying to understand historical averages and various scenarios that have panned out in the past than trying to get the expert to predict the future.
In summary we can say that:
- When we talk to experts one should be asking about the past and the present. And not the future.
- Even if we have a pretty good guess about the future, the research on overconfidence suggests that we’ll be wrong more often than we think. The future isn’t a point; it’s a range.
- We can’t know when we make a choice whether it will be successful. Success emerges from the quality of the decisions we make and the quantity of luck we receive. We can’t control luck. But we can control the way we make decisions
The books and authors mentioned in this article are some excellent resources to read. All these books are very interesting and provide great insights into evolving a better decision making process.
Happy investing….