The Value of I Don’t Know

“The way we traditionally conceive of ignorance—as an absence of knowledge—leads us to think of education as its natural antidote. But education can produce illusory confidence.” – David Dunning

I have to imagine that having a behavioral bias named after your work is one of the highlights of the psychology profession (the Nobel prize isn’t bad either). David Dunning, a professor of psychology at Cornell University, holds this distinction for his work on the Dunning-Kruger Effect.

I first came across this cognitive bias in Daniel Kahneman’s Thinking, Fact and Slow. The Dunning-Kruger Effect shows that people do not — or cannot — recognize just how incompetent they are in certain areas of life. We have a habit of developing an irrational overconfidence which overwhelms any mounting evidence of our own ignorance.

Dunning recently wrote about his namesake bias in the Pacific Standard. The title is a good one — ‘We Are All Confident Idiots.’ One of the studies mentioned discusses a personal finance test given to people that had recently filed for bankruptcy:

The roughly 800 respondents who said they had filed bankruptcy within the previous two years performed fairly dismally on the test—in the 37th percentile, on average. But they rated their overall financial knowledge more, not less, positively than other respondents did. The difference was slight, but it was beyond a statistical doubt: 23 percent of the recently bankrupted respondents gave themselves the highest possible self-rating; among the rest, only 13 percent did so. Why the self-confidence? Like Jimmy Kimmel’s victims, bankrupted respondents were particularly allergic to saying “I don’t know.” Pointedly, when getting a question wrong, they were 67 percent more likely to endorse a falsehood than their peers were. Thus, with a head full of “knowledge,” they considered their financial literacy to be just fine.

These people were fresh off of filing for bankruptcy and they still thought they were above average at managing their finances. Unbelievable. The Jimmy Kimmel victims he’s referring to are part of an ongoing bit on Kimmel’s late-night show where they ask people on the street questions about made up subjects. Many of the respondents answer with complete confidence instead of admitting they don’t know. Here’s a pretty good one:

Here are some of the issues involved with the Dunning-Kruger Effect:

  • You don’t ask for help.
  • You make decisions with complete certainty, instead of considering the alternatives.
  • You never  admit to past mistakes or learn from them going forward.

It would be easy to blame a lack of knowledge for these issues, but Dunning says that’s not always the case:

Some of our most stubborn misbeliefs arise not from primitive childlike intuitions or careless category errors, but from the very values and philosophies that define who we are as individuals. Each of us possesses certain foundational beliefs—narratives about the self, ideas about the social order—that essentially cannot be violated: To contradict them would call into question our very self-worth.

We see this all the time in the fields of economics and investing. I saw Richard Bernstein of Bernstein Advisors give a speech at a CFA Institute conference last year and he said, “Always think like an investor, never like a politician or an economist when managing money.” Ideological beliefs often trump evidence to the contrary, even when it’s staring you right in the face. People don’t like to admit when they’re wrong, but the hurdle rate for this gets raised when it involves personal beliefs.

Plus it’s very easy to find the mistakes that other people make, but very difficult to see those same mistakes in our own actions. Everyone else is an idiot, but surely not me. Here are a few suggestions from Dunning on ways to overcome this crippling mindset:

  • Be your own devil’s advocate.
  • Ask yourself how you might be wrong.
  • Imagine what could lead to failure based on your decision.
  • Seek out advice from others.

And finally, it’s not the end of the world to say “I don’t know” every once and a while:

Stumbling through all our cognitive clutter just to recognize a true “I don’t know” may not constitute failure as much as it does an enviable success, a crucial signpost that shows us we are traveling in the right direction toward the truth.

Dunning’s article is a long read but it’s definitely worth checking out:
We are all confident idiots (psmag)

Further Reading:
We’re All Smart
The Tenth Man Rule

 

 

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What's been said:

Discussions found on the web
  1. Eric commented on Nov 08

    Ben,
    Very good article. You’ve hit on a very serious issue in finance but one infrequently discussed. Professionals vastly overstate their abilities (“sure, the average active manager can’t beat the market…but I’m not average,” or “I know most market-timing schemes don’t work, but my approach is fundamentally superior”).

    Many individual investors are no better, failing to admit the mistakes they’ve made, or admitting them but talking themselves into believing THIS is the last time they’ll err. Compounding the DIY issue is when they join a group of similar-minded investors (all, for the most part, suffering from the same affliction) and succumb to confirmation bias.

    PS – I plan to steal much of this/your topic for a future article(s)

    • Ben commented on Nov 08

      Very difficult for people that are well-educated to admit this. Funny thing is the very best investors of all time are all willing to admit they don’t know/understand everything.

      I’m sure 99% of my material is using stuff I’ve learned from someone else…glad you liked it.

  2. local Joe commented on Nov 08

    Thanks for this post.

    May I recommend two book about the freedom and power of “not knowing”:

    Only Don’t Know, by Seung Sahn

    Freedom From The Known, by Krishnamurti

    • Ben commented on Nov 08

      Thanks. Always looking for new book recommendations. I’ll put these on my list.

  3. Michael commented on Nov 09

    I just read this to my wife and she said, “I’m not like that.” I’ll have to read it to her again. “Often wrong but seldom uncertain”, was a phrase we used to describe her mother 🙂

    • Ben commented on Nov 09

      Ha. That’s a good one. Apple doesn’t fall to far from the tree I guess. I think everyone has someone like this in their life.

  4. Tom Varga commented on Nov 09

    This is another Great article and SADLY relates to politics as well!

    You write terrific articles and they are the best advisement for wallowing in the financial market.

    So Glad to have discovered your site.

    • Ben commented on Nov 09

      Probably more so in poliitics but they defintiely can’t admit this for fear of not ger re-eected or worse , losing campaign funding.

      Thanks for the kind feedback.

  5. Lawrence Humphrey commented on Nov 09

    Hi Ben, love your articles but……grammar police here….

    “an irrational overconfidence which overwhelms any mounting evidence against our own ignorance.”

    Shouldn’t that be “evidence of our own ignorance.”?

  6. Jay Weinstein commented on Nov 09

    My only complaint was with the following:
    “And finally, it’s not the end of the world to say “I don’t know” every once and a while:”

    My personal experience is that saying “I don’t know” is proper about 87% of the time with individual stocks, 98% of the time with market calls, and 100% of the time when being deposed. 🙂

    • Ben commented on Nov 09

      That’s valid. I’m good with those odds.

  7. NMW commented on Nov 10

    “These people were fresh off of filing for bankruptcy and they still thought they were above average at managing their finances. Unbelievable.”

    I don’t find this unbelievable at all. The people surveyed were people who had filed backruptcy between 2010-2012, when we were in the worst recesssion and experiencing some of the worst unemployment for decades. Additionally, the number one cause of bankruptcy in this country is medical bills. That includes people who have health insurance. So if someone is unemployed and unable to find another job through no fault of their own (as millions of people were) and/or have mounting medical debt, does it necessarily follow that they don’t understand personal finance? Could it also be that they understand it well enough (to rate themselves highly when asked), but are running out of options? I’m not clear on how high financial literacy would neccesarily help someone who can’t find a job avoid bankruptcy and I don’t think the correlation is as strong as people make it seem. I liked the article a lot but thought that this in particular was a poor example.

    • Ben commented on Nov 10

      That’s a fair point. But don’t you agree that managing your personal finances has a lot to do with planning for unforeseen events? Having adequate insurance coverage and emergency savings are two of the pillars of personal finance management.

      I understand that healthcare costs can be enormous, but I don’t see how so many people that filed for bankruptcy could claim they have the highest possible rating. Plus it says these people performed terribly on the PF test, yet still rated themselves at the highest level. That’s the point, not that going bankrupt means you are automatically bad at managing your finances. It’s the combination of a lack of knowledge and the bankruptcy together that makes these rating suspicious.

  8. Mrs. Frugalwoods commented on Nov 11

    I really appreciate this perspective. I think admitting you don’t know something is the first step, but then having the confidence to learn about it is the second. I find myself up against stuff I don’t know how to do all the time and I’ve had to build the confidence to seek out the answers and do my research! Especially with home improvement projects where I usually have no idea what I’m doing at the outset, I’ve realized that I can learn how to do just about anything (well, not anything… 🙂 ).

    • Ben commented on Nov 11

      Good point. I don’t know can be the starting point to actually learning something. Those that don’t admit this are far more comfortable going through a life of ignorance.

  9. Fornik Tsai commented on Dec 02

    Good to ask yourself, what is your biggest obstacle? Try to express your ignorance.