Thursday, April 09, 2009

Don't Trust the "Experts"

April 9, 2009, 8:30 a.m.

Trust Your Instincts
(brought to you by*)

Five months ago I suggested that we common people should trust our instincts when we have the sense that we have been the victims of the largest robbery of the largest number of people in the history of the world. (At that time it was in the context of the GM bailout. Nicholas Johnson, "Trust Your Instincts, Auto Bailout's Terrible Idea," November 14, 2008.)

A couple weeks ago Nicholas Kristof provided some backup for my trust in the people's common sense. Nicholas D. Kristof, "Learning How to Think," New York Times, March 26, 2009 -- with thanks to my son, Sherman, for bringing it to my attention.

In that blog entry I commented about an earlier one, "To many observers this proposal [to bail out the auto industry] looked nuts. Nicholas Johnson,"Jobs, Not Unemployment, Key to Recovery; Why America Needs a Jobs Program: Because When Your Automobile (Industry) is in the River It Makes More Sense to Go For the Shore Than to Continue Bailing it Out," November 8, 2008 ("GM went through nearly $7 billion in cash in the course of losing over $4 billion during the last three months! Pouring more billions of taxpayers' money into this bottomless pit can do little more than postpone the agony for three or four more months.").

What has the Obama Administration, or the auto industry for that matter, gained by waiting five months -- and putting billions of additional debt on my great granddaughter's "credit card" -- before coming to the same conclusion?

I continued:
On balance, I'm a proponent of a meritocracy, expertise, graduate and post-graduate education, and looking to scientists and experts rather than ideologues for solutions to public policy challenges.

But it's also reassuring when ordinary folks like myself, relying on instincts, intuition and such limited information and understanding as we possess, can come to the same conclusions ultimately adopted by the experts.
Nicholas Johnson, "Trust Your Instincts, Auto Bailout's Terrible Idea," November 14, 2008.

You've probably heard that, with all of their high-priced financial experts, roughly 80% of specialized mutual funds do worse than the market averages (which you can buy in "index" mutual funds -- and at lower administrative costs). Pick stocks at random, throw darts, or ask your cat to scratch what she thinks are the winners on the stock market page and you'll do better than most "experts."

It makes sense -- especially given what we've just watched their stupidity and greed do to the entire global economy.

But now Nicholas Kristof informs us we should not be surprised at that result; because our instincts are almost always as good as, if not better than, the self-proclaimed "experts" in every field.

We should continue to avoid communicating the aura of arrogance and certainty that seems to exude from some experts, but neither should we feel the need to apologize, or be shy about our own judgments.

The entire column is well worth a read. Meanwhile, here are some excerpts. He writes:
Ever wonder how financial experts could lead the world over the economic cliff?

One explanation is that so-called experts turn out to be, in many situations, a stunningly poor source of expertise. There’s evidence that what matters in making a sound forecast or decision isn’t so much knowledge or experience as good judgment — or, to be more precise, the way a person’s mind works. . . .

The expert on experts is Philip Tetlock, a professor at the University of California, Berkeley. His 2005 book, “Expert Political Judgment,” is based on two decades of tracking some 82,000 predictions by 284 experts. The experts’ forecasts were tracked both on the subjects of their specialties and on subjects that they knew little about.

The result? The predictions of experts were, on average, only a tiny bit better than random guesses — the equivalent of a chimpanzee throwing darts at a board.

“It made virtually no difference whether participants had doctorates, whether they were economists, political scientists, journalists or historians, whether they had policy experience or access to classified information, or whether they had logged many or few years of experience,” Mr. Tetlock wrote.

Indeed, the only consistent predictor was fame — and it was an inverse relationship. The more famous experts did worse than unknown ones. That had to do with a fault in the media. Talent bookers for television shows and reporters tended to call up experts who provided strong, coherent points of view, who saw things in blacks and whites. People who shouted — like, yes, Jim Cramer!

Mr. Tetlock called experts such as these the “hedgehogs,” after a famous distinction by the late Sir Isaiah Berlin (my favorite philosopher) between hedgehogs and foxes. Hedgehogs tend to have a focused worldview, an ideological leaning, strong convictions; foxes are more cautious, more centrist, more likely to adjust their views, more pragmatic, more prone to self-doubt, more inclined to see complexity and nuance. And it turns out that while foxes don’t give great sound-bites, they are far more likely to get things right.

This was the distinction that mattered most among the forecasters, not whether they had expertise. Over all, the foxes did significantly better, both in areas they knew well and in areas they didn’t.

Other studies have confirmed the general sense that expertise is overrated. In one experiment, clinical psychologists did no better than their secretaries in their diagnoses. In another, a white rat in a maze repeatedly beat groups of Yale undergraduates in understanding the optimal way to get food dropped in the maze. The students over-analyzed and saw patterns that didn’t exist, so they were beaten by the rodent. . . .
Nicholas D. Kristof, "Learning How to Think," New York Times, March 26, 2009.

So be a fox. Don't be shy. Say it loud; say it proud: "I've been cheated out of a whole lot of money by a bunch of thieves in suits, who have caused individuals all around the world to lose trillions of dollars of wealth, thieves who are walking away with past years' of excessive compensation, bonuses, and stock profits; and the politicians whose campaigns they've been financing are protecting them, giving them trillions of dollars of my money, and there's scarcely a prosecution in sight!"

That's right. Don't you feel better now? Next try "I'm mad as hell and I'm not going to take it anymore!"

Then start turning up the heat on Congress.

Meanwhile, trust your instincts about all this. Apparently you and I really do know as much as the "experts."

* Why do I put this blog ID at the top of the entry, when you know full well what blog you're reading? Because there are a number of Internet sites that, for whatever reason, simply take the blog entries of others and reproduce them as their own without crediting the source. I don't mind the flattering attention, but would appreciate acknowledgment as the source -- even if I have to embed it myself. -- Nicholas Johnson

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