The Ignorance you don’t understand
David Brooks looks at why people don’t want advice…
Financial advisers struggle to convince people of the benefits of their advice. They can be seen as self-serving and over-complicating the issue. While that may be true for some, for some of the time, a recent survey by comparison website Money suggests that 59% of over 55’s shun financial advice because they feel they don’t need it.
I have no doubt that a select few don’t need advice for many reasons. However, I think that many in that category have no idea how little they know on the topic of pensions and all the related areas they need to consider. Perhaps they got lucky on some investments which fed their cognitive bias that they know more than they do. Perhaps their ego clouds their ability to ask for assistance.
The Dunning-Kruger effect is something that we have probably all experienced without knowing it. It helps describe that moment when you believe you understand something, but in reality you are so ignorant of it you barely understand your ignorance.
As David Dunning (co-author of the effect with Justin Kruger at Cornell University in 1999) recently stated,
“incompetent people do not recognise – scratch that, cannot recognise – just how incompetent they are.”
He continues:
“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.”
Their study shows that while competent individuals will underestimate their ability, the majority increasingly overestimate their ability.
This is fed by ego and people’s ability to recognise ignorance in others, but failure to recognise one’s own. ‘Confirmation bias’, the ability to remember the things we got right and ignore the things we get wrong, also has a part to play in this.
The words used to describe this aren’t supposed to belittle. It is easy to be arrogant and condescending and think “we’re surrounded by fools!” but I think it is important to recognise that on any given topic we are all on the curve of unrecognised ignorance.
You may feel there is a particular topic about which you are an expert. However, to understand what the majority experience you need to think of other areas where in fact the extent of your knowledge barely stretches to the extent of your ignorance.
One way to understand the impact of this is think of an area you excel at, and consider how much the average person knows about that area. They know very little and it is clear they know very little about how little they know. Now, consider you are as ignorant about every other area of knowledge that you are not expert.
If you can achieve that exercise then you will now have a large dose of humility about what you do and do not know. If you’re embarking on a mission to learn about finance (or my favourite topic, pensions) learn from Dunning and Kruger.
Learn to think critically, use logic and empiricism, and presume we don’t know everything. This way you’re more likely to make better choices.
David Brooks is the Pensions Technical Director at Broadstone Corporate Benefits Ltd. You can find him on twitter @PensionsDave