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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. The financial writer Adam

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Speaker 1: Smith once wrote, if you don't know who you are,

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Speaker 1: this is an expensive place to find out. He was

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Speaker 1: writing about Wall Street and investing, and his insight is correct.

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Speaker 1: If you don't know who you are, if you don't

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Speaker 1: understand what you own, how much leverage you're undertaking, how

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Speaker 1: much risk you have, this is a very expensive place

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Speaker 1: to learn that lesson the hard way. I'm Barry Ridhelts

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Speaker 1: and on today's edition of At the Money, we're going

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Speaker 1: to discuss self insight, our ability to know ourselves and

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Speaker 1: understand our abilities. To help us unpack all of this

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Speaker 1: and what it means for your portfolio. Let's bring in

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Speaker 1: Professor David Dunning of the University of Michigan. He is

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Speaker 1: the author of several books on the psychology of self,

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Speaker 1: and if his name is familiar, he is the Dunning

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Speaker 1: in Dunning Krueger. Welcome, professor. Let's just ask a simple question,

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Speaker 1: how come it's so hard to know ourselves?

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Speaker 2: There are many, many reasons, and thank you for having

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Speaker 2: me well. In many reasons, there are problems annoying ourselves

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Speaker 2: in terms of our character and annoying ourselves in terms

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Speaker 2: of our confidence, in terms of our character, we overplay

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Speaker 2: how much agency we have over the world. We're not

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Speaker 2: as influential as we think. And in terms of confidence,

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Speaker 2: we overestimate how much we know. Now, each of us

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Speaker 2: knows a tremendous amount, but by definition, our ignorance is infinite.

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Speaker 2: And the problem with that is our ignorance is also

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Speaker 2: invisible to us. That creates an issue.

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Speaker 1: So what other roadblocks and detours are there on the

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Speaker 1: path to knowing thyself?

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Speaker 2: Well, it's the invisible ability of our flaws and our foibles.

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Speaker 2: Some of it is the world. It's not a very

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Speaker 2: good teacher. It doesn't tell us. Its feedback is a

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Speaker 2: chancy off, and its feedback is invisible. What doesn't happen

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Speaker 2: to you as opposed to what does happen to you?

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Speaker 2: What people tell you to your face is different from

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Speaker 2: what they're saying behind your back. So the information we

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Speaker 2: get our information environment is either incomplete or it's misleading.

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Speaker 2: And beyond that, we're co conspirators. We engage in self deception,

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Speaker 2: We protect our egos. We are active in the duplicity

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Speaker 2: in terms of getting to accurate self knowledge.

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Speaker 1: We've discussed before any decision or plan we make requires

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Speaker 1: not one, but two judgments. The first judgment is what

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Speaker 1: the item we're deciding about it, and the second judgment

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Speaker 1: is our degree of confidence, assessing whether or not our

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Speaker 1: first judgment was valid. Which is the more important of

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Speaker 1: the two.

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Speaker 2: It should be the second one, but we tend to

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Speaker 2: focus on the first one. We tend to focus on

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Speaker 2: our plans the scenario, and we tend to ignore or

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Speaker 2: neglect the second one, the fact that life happens and

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Speaker 2: life tends to be unexpected. We should expect the unexpected,

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Speaker 2: and so we should have contingency plans. We should be

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Speaker 2: sure to think about what we don't know. We should

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Speaker 2: be sure to think about what typically happens to other

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Speaker 2: people and have plan b's and Plan c's for when

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Speaker 2: those sorts of things can happen, or at least have

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Speaker 2: plans for unknown things that can happen. Because the one

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Speaker 2: thing we know is that unknown things will happen, and

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Speaker 2: everything in the past has always been slow than we expected.

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Speaker 2: We should expect that everything in the future is going

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Speaker 2: to be expected. But we tend to overweight give too

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Speaker 2: much attention to our plans and not think about the

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Speaker 2: barriers and not think about the unknown barriers that are

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Speaker 2: certainly going to hit us in the future. That's what

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Speaker 2: I mean by the fact that we tend to give

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Speaker 2: too much way to our agency and the world, not

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Speaker 2: give credit to the world and its deviousness in thwarting us.

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Speaker 1: So let's talk a little bit about how illusory our

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Speaker 1: understanding of our own abilities are. Is it that we're

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Speaker 1: merely unskilled at evaluating ourselves or are we just lying

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Speaker 1: to ourselves.

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Speaker 2: We're actually doing both. I mean, there are two layers

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Speaker 2: of issues. One layer of issues is we're not very

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Speaker 2: skilled at knowing what we don't know. I mean, think

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Speaker 2: about it. It's incredibly difficult to know what you don't know.

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Speaker 2: You don't know it. Could you know what you don't know?

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Speaker 2: That's a problem. We're not very skilled at knowing how

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Speaker 2: good our information environment is, how complete our information is.

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Speaker 2: That's one issue. The second issue is what's it called

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Speaker 2: just referred to as the motivated reasoning issue, which is

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Speaker 2: just simply then we go from there and we practice

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Speaker 2: some motivated reasoning self deception, wishful thinking. We actively deceive

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Speaker 2: ourselves in how good we think our judgments are. We

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Speaker 2: bias our reasoning or distort our reasoning toward preferred conclusion conclusions. Yep,

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Speaker 2: that that stock excuse me, will succeed. Our judgment is

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Speaker 2: absolutely terrific. This will be a wonderful investment year. There's

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Speaker 2: nothing but a rosy stock market ahead for us. That's

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Speaker 2: the second layer. But there are issues before we even

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Speaker 2: get that second layer, which it's just simply we don't know.

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Speaker 2: We don't know, and it's very hard to know what

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Speaker 2: we don't know.

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Speaker 1: So we live in an era of social media. Everybody

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Speaker 1: walks around with their phones in their pockets. They're plugged

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Speaker 1: into everything from TikTok to Instagram, to Twitter to Facebook.

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Speaker 1: What's the impact of social media on our self awareness

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Speaker 1: of who we are? Has it had a negative impact?

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Speaker 2: I think social media has had all sorts of impact,

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Speaker 2: and I think what it's done is create a lot

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Speaker 2: of variance, a lot of spread in terms of the

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Speaker 2: accuracy of what people think about themselves and positivity and

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Speaker 2: the negativity of what people think about themselves. There's just

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Speaker 2: a lot of information out there, and people can truly

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Speaker 2: become expert if they know what to look for. But

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Speaker 2: there's also a lot of possibility for people to come

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Speaker 2: truly misled if they're not careful or discerning in what

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Speaker 2: they're looking at, because there's a lot of misinformation and

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Speaker 2: there's a lot of outright fraud in social media as well.

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Speaker 2: So people can think that they're expert because there's a

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Speaker 2: lot of plausible stuff out there, but there's a lot

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Speaker 2: more in the world that's plausible than is true, and

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Speaker 2: so people can think they have good information where they

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Speaker 2: don't have a good information that involves issues like finance,

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Speaker 2: that involves issues like health, that involves issues like national

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Speaker 2: affairs and politics, that's an issue. It's possible to become

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Speaker 2: expert if you know what to look for. So there's

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Speaker 2: a lot of variance in terms of people becoming expert

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Speaker 2: or thinking they're expert and becoming anything. But in terms

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Speaker 2: of being positive or being negative, there's a lot of

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Speaker 2: tragedy on the internet, so by comparison, you can think

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Speaker 2: well of yourself. And it is a fact that when

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Speaker 2: people go on the internet, but they post or all

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Speaker 2: the good things that happened in their life, all the

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Speaker 2: good news happened to them, but that's the only thing

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Speaker 2: they post. And if you're sitting there and you're rather

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Speaker 2: good news bad news, life you can think that you're

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Speaker 2: rather ordinary, or you can think that you're rather mundane

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Speaker 2: when everybody else is having so much more of a

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Speaker 2: best life than you are. You can think that you're

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Speaker 2: doing much worse than everybody else. So the internet just

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Speaker 2: can create a lot of different impacts on people. That's

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Speaker 2: both good and bad, truthful and untruthful. It just turns

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Speaker 2: up the volume and everything.

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Speaker 1: Yeah, we certainly see social status and wealth on display.

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Speaker 1: You never see the bills and the debt that comes

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Speaker 1: along with that. That's a really good way of describing it.

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Speaker 1: Talking about expertise, I cannot help but notice over the

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Speaker 1: past few years, especially on social media, how blithely so

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Speaker 1: many people proclaimed their own expertise. First it was on epidemiology,

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Speaker 1: then it was on vaccines, then it was constitutional law.

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Speaker 1: More recently it's been on military theory. Is this just

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Speaker 1: the human condition where we're wildly overconfident in our ability

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Speaker 1: to become experts even if we don't have that expertise.

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Speaker 2: Well, I think it is. And if it's not all

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Speaker 2: of us, at least it's some of us. That is,

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Speaker 2: we have a little bit of knowledge, and it leads

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Speaker 2: us to think that we can be expert in something

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Speaker 2: that we're quite frankly not expert in. We know a

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Speaker 2: little bit of math, we can draw a curve, and

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Speaker 2: so we think we can become expert epidemiology when we're

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Speaker 2: a mathematician or maybe a lawyer, or maybe we've heard

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Speaker 2: a little bit about evolution, and so we think we

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Speaker 2: can comment on the evolution of a virus when we're not.

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Speaker 2: We don't study viruses. We're not an epidemiologist, but we

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Speaker 2: know a little bit, and once again, we don't know

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Speaker 2: what we don't know. So we think we can comment

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Speaker 2: on another person's area of expertise because we know nothing

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Speaker 2: about the expertise contained in that other person's area of expertise.

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Speaker 2: A philosopher Freend of Mind, Nathan Valentine and I have

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Speaker 2: written about epistemic trespassing, where people in one area of

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Speaker 2: expertise who know a little bit about something decide that

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Speaker 2: they can trespass into another area of expertise and make

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Speaker 2: huge public proclamations because they know something that looks like

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Speaker 2: it's relevant, looks like it's informative, and it has a

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Speaker 2: small slice of relevance, but it misses a lot in

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Speaker 2: terms of really commenting on things like international affairs, or

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Speaker 2: economic policy, or epidemiology. But people feel that they have

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Speaker 2: licensed to comment on something that lies outside of their

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Speaker 2: actual area of expertise. Now, some of us give ourselves

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Speaker 2: a great license to do that, but I do want

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Speaker 2: to mention that this is part of being human, because

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Speaker 2: part of being human, part of the way that we're built,

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Speaker 2: is every day we do wander into new situations and

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Speaker 2: we have to solve problems. We have to innovate, We

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Speaker 2: have to figure out how do I handle this situation.

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Speaker 2: So we cobble together whatever expertise, whatever experience, whatever ideas,

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Speaker 2: we have to try to figure out how do we

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Speaker 2: handle this situation. This imagination is how we're built. It's

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Speaker 2: part of our genius. But it's a genius that we

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Speaker 2: can over apply. And what you're seeing in epistemic trespassing

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Speaker 2: is a flamboyant way in which this genius is over

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Speaker 2: applied in the public domain.

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Speaker 1: So wrap this up for us, professor, what do we

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Speaker 1: need to do to better understand and ourselves, our capabilities

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Speaker 1: and our limitations.

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Speaker 2: Well, I think when it comes to understanding information like

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Speaker 2: the Internet, like reading someone who might be an epistemic

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Speaker 2: trespassor for example, or someone who is making grand statements

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Speaker 2: about epidemiology or foreign policy or whatnot, is maybe it

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Speaker 2: would be good to familiarize ourselves with the skills of journalism.

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Speaker 2: And actually, I wish schools would teach journalism skills, or

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Speaker 2: at least fact checking skills more prominently in the American

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Speaker 2: education system. That is, as we progress in the twenty

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Speaker 2: first century, dealing with information is going to be the

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Speaker 2: skill that we all need. Finding experts and evaluating experts

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Speaker 2: who with an expert is going to be a skill

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Speaker 2: that we all need. Figuring out if we're expert enough

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Speaker 2: is going to be a skill that we all need.

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Speaker 2: And a lot of that it's really about being able

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Speaker 2: to evaluate the information that we confront and a lot

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Speaker 2: of that really boils down to fact checking in journalism,

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Speaker 2: So finding out how to do that. I wish we

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Speaker 2: could have a little bit more of those skills as

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Speaker 2: a country, or at least that that's the nudge that

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Speaker 2: I would give people.

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Speaker 1: Huh, really very fascinating. So to wrap up, having a

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Speaker 1: strong sense of self moderated with a dose of humility

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Speaker 1: is a good way to avoid disaster on Wall Street.

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Speaker 1: Adam Smith was right, if you don't know who you are.

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Speaker 1: Wall Street is an expensive place to find out. I'm

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Speaker 1: Barry Ridults and this is Bloomberg's at the moment, But

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Speaker 2: Tell me for your