Op-Ed Columnist – Learning How to Think – NYTimes.com.
I saw this article a few days ago and concluded: close but no cigar. Greater accountability has become the next best buzz word–greater transparency is of course king right now. But I caution, greater accountability does not make anyone better. Being accountable does not prevent mistakes, carelessness, accidents, or any of the other unintended consequences put in the negative outcome category. And what should we do with the adviser who gets a forecast wrong, stop listening. Well this seems to me a path of constantly following people until one mistake occurs, which does nothing to help identify an expert, it only provides an incentive to mask mistakes so that an supposed adviser can continue to get clients after everyone leaves–Problem number one with monitoring experts financial incentive is to collect money before client inevitably moves on.
The other problem with monitoring purported experts is that people who randomly get “it” right will unjustifiably claim expert status. Anyone who follows sports betting advice has run into this phenomenon. Seemingly thousands of sports prognosticators advertise their recent success as justification for paying to listen to this weeks inside tips. Any historical review of their record will indeed prove their claim correct. But just getting it right in the past is no guarantee of getting it right in the future. Just as the gambling winner informs you of great detail about thier winning streak, all the while maintaining silence about the losing streak produced with the same strategy. The same goes with investment advice, economic forecasting, and many other fields, people happily tell one side of the story, when seeking to complete a sale. Great salesmanship, but horrible way to identify an expert. Greater accountability and monitoring only makes the salesmanship story easier.
No the secret to identifying an expert was discussed in a Stanford Research paper (warning lots of math symbols, can cause headaches for some) with the title “A True Expert Knows Which Question Should Be Asked.” For us non-experts, the key to identifying an expert is to ask them a question that only an expert would know, but we can observe. If the proposed expert can’t eliminate the competition for expert status, then how can they be an expert.
By asking the proposed expert to predict something that only experts would know and that the non-expert can observe, we transfer the judgment to the expert to distinguish themselves. The beauty of this request is its unique power to allow the non-expert to identify expertise without having expertise them self. Because if only experts would know, then the non-expert should be able to ask many others and not get the same subject matter as a prediction, and the non-expert can observe the prediction come true.
If an proposed expert cannot pass both these test, then you don’t have an expert. Bottom line, there are many non experts. Take notice now of how many financial advisers sell you on some strategy, by noting the greatness of the past performance. Just try asking any purported financial advisor to predict something that you can observe (a prediction before you spend money on fees) but only an expert financial advisor would know.
So next time your watching Bloomberg, CNBC or any of the other financial news shows and a talking head with a title is presented to complete the news story, take a measure of what prediction they give that they believe others cannot. Or for sports fans, listen to the many talking heads try to predict game events. Most of what we experience is entertainment and not news, and certainly not the inside story to winning a bet.
Sadly we don’t have many experts around us, which leads to the ultimate conclusion, we are responsible for ourselves, and we are well served to seek multiple opinions. And, oh yes, if it sounds easy and its too good to be true, it is.
