Monday, May 26, 2014

Three Points On Knowledge

1. Over Representation:

Think about when we offer our knowledge and opinions (and conjectures) on a particular topic for which we are not an expert--in other words, 99% of our daily dialogue. It would be interesting if the social norm would be to conclude by saying, "And that is the extent of my knowledge on this subject." Some people, of which I am one, are of the personality type that they feel compelled to share everything they know about a subject when discussing it. There is nothing wrong with this per se, but it can create the false illusion that we know more than we actually do--that there are even more gems left in the bag rather than that's all, folks!

I've been trying to make an effort to be more explicit about the limits of what I know, and I plan to work harder to that end.

2. "I Don't Know"

"I don't know"* is the almost always unacceptable response that is almost always the most correct answer. What happens after we die? There is but one correct answer scientifically speaking. You can believe one thing or another, but you do not know. 

IDK is nearly as applicable to all questions pre death. The complexity of our Universe, our economy, our own preferences leaves us generally in a state of darkness with just flickers of sporadic light. We should be more appreciative of this truth.

Yet humans have a universal thirst for certainty. Inquiring minds want to know. That is a good thing--it leads us to question and find answers and then question those answers to reveal deeper truths. I just wish we could be more honest about how true and virtuous the answer IDK is. If we were, it might minimize how thirst for certainty is also a bad thing. It is a big part of why we crave and succumb to authority. It is how con men can win over intelligent people. The investment community if full of people who refuse to say IDK. Politicians get roundly "defeated" in debates by even hinting at IDK. In business you might as well say "Fire me now".

Saying "I don't know" takes courage and wisdom, and so does acceptance of it as an answer.

3. Trust of Knowledge.

There are two extremes along the dimension of trust I am considering here. Those extremes are only trusting locals vs. locals are morons. I think people tend to fall toward one extreme or another, but they are not consistently at either end. Rather it varies topic to topic. The former extreme is driven by belief that only locals understand the circumstances whereas the latter is driven by knowing locals too well to know their flaws. Both reasoning are obviously faulty when at the extreme.

I see this thinking often in my profession, investment management. Some people are biased against a local firm managing their money preferring at least someone "smart" enough to be in Dallas or Chicago if not New York. Other people take the opposite approach and are very fearful of anyone from New York City! because "they will", of course, rob you blind.

Related (perhaps a bonus knowledge point): Margins of accepted error--how one's biases influence the margin of error one allows for cohorts who match versus cohorts who oppose one's views. Most ideas are bad ideas--impractical, plagued by substantially bad facts, and suffering from poor reasoning. Yet I think we cut our ideological brethren a lot of slack while being harshly critical of our opponents. We do something similar in business. If I trust locals, I give them a wider berth (and perhaps more financial leniency) than I do outsiders. If I think locals are fools, the hurdles I make them clear leave both of us poorer.

There are many ways we inconsistently apply margins of accepted error. Recognition and mitigation of these requires constant vigilance.

Keep thinking . . .

*There was a recent Freakonomics podcast on IDK. I thought it was good, not great. I hope the space they devote in their new book is a little more fulfilling.