Category Archives: Economics

Experts and the Availability Bias

You’ve heard the aphorism, A little knowledge is a dangerous thing. This week, I learned a new way that that’s true.

Thinking, Fast and Slow is a fascinating book about how the brain works. In one of the chapters, author Daniel Kahneman explores what makes us subject to the “availability bias.” This is the tendency to believe things because it’s easy to call supporting arguments to mind, rather than because those arguments are sound or because we’ve conducted thorough research and considered all sides.

According to Kahneman, one of the factors that makes us susceptible to this bias is being “knowledgeable novices on the topic … in contrast to true experts.”  Our knowledge makes it easy to cite a few arguments, and we lazily and happily believe we’re right, no matter what the experts say.

That is humbling. I think of areas where I have fancied myself so knowledgeable that I was qualified to dismiss the findings of experts, and later discovered that the experts had been right all along. The most egregious instance is my pooh-poohing of evolution, but there have been others.

In the 1980s, I attended a speech by the chief economist of CIGNA. He predicted that the 1990s would be an excellent decade for stocks, and he cited several reasons based on his research. He was a very impressive guy: brilliant, well-traveled, and well-connected, but I knew better than to be taken in by this so-called expert. I had read a book called Bankruptcy 1995, which made it very clear that America was headed for financial ruin — and soon — due to runaway national debt. I may have been a novice compared to Mr. Chief Economist, but I was a knowledgeable novice!

Of course, we know who turned out to be right. I missed one of the greatest market booms in history.

dow

Opportunities to be a knowledgeable novice abound. Do you find yourself saying any of these things? If so, you might be right, but be careful!

  • Doctors don’t know anything. This alternative/shamanic/new-age remedy is what really works.
  • Related to that… If I just take this fistful of pills that I got at GNC, I don’t have to loose weight or exercise.
  • Based on their research, most university professors say that a strong social safety net reduces poverty and increases general happiness. Of course they would say that! They’re biased liberals! They may have advanced degrees, but Rush Limbaugh has given me a real education!
  • I don’t need any fancy studies to prove it. I know that prayer to my God works! My holy book says so, and I’ve even seen some sick people get well after prayer.
  • So-called experts in foreign relations suggest a measured approach in the Middle East. I know how the world really works: if we just turned part of Saudi Arabia into molten glass, those A-rabs would start to pay attention real quick!

Once in a while, an opinion outside the expert mainstream is proven right. More often, it is the experts who have the expertise. If we disagree with them, let’s be humble enough to admit the possibility of our own availability bias. Let’s be even more careful than usual to practice shaphat.

Is Multinational Democracy Possible?

Vaclav Klaus

Vaclav Klaus

While chewing on my Frosted Shredded Wheat this morning, I read a thought-provoking speech by the president of the Czech Republic, Vaclav Klaus.

A highly educated economist as well as a top politician in his country, Dr. Klaus says that Europe’s current economic malaise is the result of a decadent and paternalistic economic culture, especially in the wake of increased unification and the implementation of a single currency.

After distinguishing between integration (a good thing) and centralization (an ominous turn away from democracy), he spoke the line that really caught my eye:

It was forgotten that states are the only institutions where real democracy is possible.

His ideas are an interesting counterpoint to my last post, Morality, Fractals and the Arab Spring, where I waxed optimistic about the increasing scale of democracy in the world.

You can read his speech here: The Crisis of the European Union: Causes and Significance.

What do you think? Can democracy function at a super-national level, or is the nation-state the largest scale where it can be accountable to the people?