WEBVTT - At the Money: Why Self-Insight Is So Important

0:00:02.920 --> 0:00:11.000
<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news. The financial writer Adam

0:00:11.039 --> 0:00:13.880
<v Speaker 1>Smith once wrote, if you don't know who you are,

0:00:14.400 --> 0:00:17.360
<v Speaker 1>this is an expensive place to find out. He was

0:00:17.400 --> 0:00:21.680
<v Speaker 1>writing about Wall Street and investing, and his insight is correct.

0:00:21.920 --> 0:00:23.840
<v Speaker 1>If you don't know who you are, if you don't

0:00:23.920 --> 0:00:27.400
<v Speaker 1>understand what you own, how much leverage you're undertaking, how

0:00:27.480 --> 0:00:30.680
<v Speaker 1>much risk you have, this is a very expensive place

0:00:31.120 --> 0:00:39.680
<v Speaker 1>to learn that lesson the hard way. I'm Barry Ridhelts

0:00:39.680 --> 0:00:43.040
<v Speaker 1>and on today's edition of At the Money, we're going

0:00:43.080 --> 0:00:48.360
<v Speaker 1>to discuss self insight, our ability to know ourselves and

0:00:48.600 --> 0:00:52.400
<v Speaker 1>understand our abilities. To help us unpack all of this

0:00:52.520 --> 0:00:55.360
<v Speaker 1>and what it means for your portfolio. Let's bring in

0:00:55.400 --> 0:00:59.640
<v Speaker 1>Professor David Dunning of the University of Michigan. He is

0:00:59.680 --> 0:01:02.760
<v Speaker 1>the author of several books on the psychology of self,

0:01:03.080 --> 0:01:05.680
<v Speaker 1>and if his name is familiar, he is the Dunning

0:01:06.120 --> 0:01:10.760
<v Speaker 1>in Dunning Krueger. Welcome, professor. Let's just ask a simple question,

0:01:11.240 --> 0:01:14.119
<v Speaker 1>how come it's so hard to know ourselves?

0:01:14.800 --> 0:01:17.360
<v Speaker 2>There are many, many reasons, and thank you for having

0:01:17.400 --> 0:01:20.720
<v Speaker 2>me well. In many reasons, there are problems annoying ourselves

0:01:20.720 --> 0:01:23.759
<v Speaker 2>in terms of our character and annoying ourselves in terms

0:01:23.760 --> 0:01:27.479
<v Speaker 2>of our confidence, in terms of our character, we overplay

0:01:27.560 --> 0:01:30.399
<v Speaker 2>how much agency we have over the world. We're not

0:01:30.440 --> 0:01:34.000
<v Speaker 2>as influential as we think. And in terms of confidence,

0:01:35.040 --> 0:01:38.880
<v Speaker 2>we overestimate how much we know. Now, each of us

0:01:39.640 --> 0:01:44.080
<v Speaker 2>knows a tremendous amount, but by definition, our ignorance is infinite.

0:01:44.640 --> 0:01:47.880
<v Speaker 2>And the problem with that is our ignorance is also

0:01:48.520 --> 0:01:51.400
<v Speaker 2>invisible to us. That creates an issue.

0:01:52.280 --> 0:01:55.480
<v Speaker 1>So what other roadblocks and detours are there on the

0:01:55.520 --> 0:01:57.840
<v Speaker 1>path to knowing thyself?

0:01:58.960 --> 0:02:02.400
<v Speaker 2>Well, it's the invisible ability of our flaws and our foibles.

0:02:03.160 --> 0:02:04.920
<v Speaker 2>Some of it is the world. It's not a very

0:02:04.920 --> 0:02:10.040
<v Speaker 2>good teacher. It doesn't tell us. Its feedback is a

0:02:10.240 --> 0:02:14.800
<v Speaker 2>chancy off, and its feedback is invisible. What doesn't happen

0:02:14.840 --> 0:02:17.000
<v Speaker 2>to you as opposed to what does happen to you?

0:02:18.040 --> 0:02:21.799
<v Speaker 2>What people tell you to your face is different from

0:02:21.800 --> 0:02:25.680
<v Speaker 2>what they're saying behind your back. So the information we

0:02:25.760 --> 0:02:30.720
<v Speaker 2>get our information environment is either incomplete or it's misleading.

0:02:31.280 --> 0:02:37.320
<v Speaker 2>And beyond that, we're co conspirators. We engage in self deception,

0:02:37.880 --> 0:02:45.000
<v Speaker 2>We protect our egos. We are active in the duplicity

0:02:45.400 --> 0:02:48.800
<v Speaker 2>in terms of getting to accurate self knowledge.

0:02:49.280 --> 0:02:53.720
<v Speaker 1>We've discussed before any decision or plan we make requires

0:02:53.760 --> 0:02:57.760
<v Speaker 1>not one, but two judgments. The first judgment is what

0:02:57.840 --> 0:03:02.000
<v Speaker 1>the item we're deciding about it, and the second judgment

0:03:02.240 --> 0:03:05.880
<v Speaker 1>is our degree of confidence, assessing whether or not our

0:03:05.919 --> 0:03:09.320
<v Speaker 1>first judgment was valid. Which is the more important of

0:03:09.320 --> 0:03:09.600
<v Speaker 1>the two.

0:03:10.240 --> 0:03:13.320
<v Speaker 2>It should be the second one, but we tend to

0:03:13.360 --> 0:03:16.080
<v Speaker 2>focus on the first one. We tend to focus on

0:03:16.120 --> 0:03:21.360
<v Speaker 2>our plans the scenario, and we tend to ignore or

0:03:21.400 --> 0:03:25.840
<v Speaker 2>neglect the second one, the fact that life happens and

0:03:25.919 --> 0:03:31.240
<v Speaker 2>life tends to be unexpected. We should expect the unexpected,

0:03:31.280 --> 0:03:36.240
<v Speaker 2>and so we should have contingency plans. We should be

0:03:36.400 --> 0:03:39.080
<v Speaker 2>sure to think about what we don't know. We should

0:03:39.120 --> 0:03:42.320
<v Speaker 2>be sure to think about what typically happens to other

0:03:42.360 --> 0:03:46.600
<v Speaker 2>people and have plan b's and Plan c's for when

0:03:46.680 --> 0:03:49.800
<v Speaker 2>those sorts of things can happen, or at least have

0:03:49.880 --> 0:03:53.680
<v Speaker 2>plans for unknown things that can happen. Because the one

0:03:53.680 --> 0:03:58.160
<v Speaker 2>thing we know is that unknown things will happen, and

0:03:58.320 --> 0:04:00.960
<v Speaker 2>everything in the past has always been slow than we expected.

0:04:01.000 --> 0:04:02.920
<v Speaker 2>We should expect that everything in the future is going

0:04:03.000 --> 0:04:07.360
<v Speaker 2>to be expected. But we tend to overweight give too

0:04:07.440 --> 0:04:10.960
<v Speaker 2>much attention to our plans and not think about the

0:04:11.000 --> 0:04:14.160
<v Speaker 2>barriers and not think about the unknown barriers that are

0:04:14.240 --> 0:04:17.120
<v Speaker 2>certainly going to hit us in the future. That's what

0:04:17.160 --> 0:04:19.520
<v Speaker 2>I mean by the fact that we tend to give

0:04:19.760 --> 0:04:22.520
<v Speaker 2>too much way to our agency and the world, not

0:04:22.680 --> 0:04:28.360
<v Speaker 2>give credit to the world and its deviousness in thwarting us.

0:04:28.880 --> 0:04:33.599
<v Speaker 1>So let's talk a little bit about how illusory our

0:04:33.800 --> 0:04:38.120
<v Speaker 1>understanding of our own abilities are. Is it that we're

0:04:38.279 --> 0:04:42.880
<v Speaker 1>merely unskilled at evaluating ourselves or are we just lying

0:04:42.920 --> 0:04:43.760
<v Speaker 1>to ourselves.

0:04:44.040 --> 0:04:46.640
<v Speaker 2>We're actually doing both. I mean, there are two layers

0:04:46.640 --> 0:04:51.680
<v Speaker 2>of issues. One layer of issues is we're not very

0:04:51.720 --> 0:04:54.800
<v Speaker 2>skilled at knowing what we don't know. I mean, think

0:04:54.800 --> 0:04:58.520
<v Speaker 2>about it. It's incredibly difficult to know what you don't know.

0:04:58.839 --> 0:05:01.640
<v Speaker 2>You don't know it. Could you know what you don't know?

0:05:03.080 --> 0:05:08.440
<v Speaker 2>That's a problem. We're not very skilled at knowing how

0:05:08.480 --> 0:05:11.840
<v Speaker 2>good our information environment is, how complete our information is.

0:05:12.520 --> 0:05:16.520
<v Speaker 2>That's one issue. The second issue is what's it called

0:05:16.600 --> 0:05:19.680
<v Speaker 2>just referred to as the motivated reasoning issue, which is

0:05:19.720 --> 0:05:22.760
<v Speaker 2>just simply then we go from there and we practice

0:05:22.839 --> 0:05:28.360
<v Speaker 2>some motivated reasoning self deception, wishful thinking. We actively deceive

0:05:28.520 --> 0:05:33.440
<v Speaker 2>ourselves in how good we think our judgments are. We

0:05:33.520 --> 0:05:39.200
<v Speaker 2>bias our reasoning or distort our reasoning toward preferred conclusion conclusions. Yep,

0:05:39.240 --> 0:05:44.880
<v Speaker 2>that that stock excuse me, will succeed. Our judgment is

0:05:45.000 --> 0:05:50.960
<v Speaker 2>absolutely terrific. This will be a wonderful investment year. There's

0:05:51.080 --> 0:05:56.440
<v Speaker 2>nothing but a rosy stock market ahead for us. That's

0:05:56.480 --> 0:05:58.800
<v Speaker 2>the second layer. But there are issues before we even

0:05:58.839 --> 0:06:02.120
<v Speaker 2>get that second layer, which it's just simply we don't know.

0:06:02.200 --> 0:06:04.240
<v Speaker 2>We don't know, and it's very hard to know what

0:06:04.240 --> 0:06:04.800
<v Speaker 2>we don't know.

0:06:05.560 --> 0:06:09.159
<v Speaker 1>So we live in an era of social media. Everybody

0:06:09.200 --> 0:06:11.800
<v Speaker 1>walks around with their phones in their pockets. They're plugged

0:06:11.800 --> 0:06:16.600
<v Speaker 1>into everything from TikTok to Instagram, to Twitter to Facebook.

0:06:17.160 --> 0:06:21.560
<v Speaker 1>What's the impact of social media on our self awareness

0:06:22.120 --> 0:06:25.440
<v Speaker 1>of who we are? Has it had a negative impact?

0:06:26.720 --> 0:06:29.640
<v Speaker 2>I think social media has had all sorts of impact,

0:06:29.800 --> 0:06:32.680
<v Speaker 2>and I think what it's done is create a lot

0:06:32.720 --> 0:06:38.120
<v Speaker 2>of variance, a lot of spread in terms of the

0:06:38.120 --> 0:06:41.320
<v Speaker 2>accuracy of what people think about themselves and positivity and

0:06:41.360 --> 0:06:44.760
<v Speaker 2>the negativity of what people think about themselves. There's just

0:06:44.839 --> 0:06:47.320
<v Speaker 2>a lot of information out there, and people can truly

0:06:47.360 --> 0:06:50.240
<v Speaker 2>become expert if they know what to look for. But

0:06:50.360 --> 0:06:53.000
<v Speaker 2>there's also a lot of possibility for people to come

0:06:53.040 --> 0:06:58.120
<v Speaker 2>truly misled if they're not careful or discerning in what

0:06:58.279 --> 0:07:01.839
<v Speaker 2>they're looking at, because there's a lot of misinformation and

0:07:01.880 --> 0:07:05.599
<v Speaker 2>there's a lot of outright fraud in social media as well.

0:07:06.080 --> 0:07:09.640
<v Speaker 2>So people can think that they're expert because there's a

0:07:09.680 --> 0:07:12.360
<v Speaker 2>lot of plausible stuff out there, but there's a lot

0:07:12.480 --> 0:07:16.600
<v Speaker 2>more in the world that's plausible than is true, and

0:07:16.680 --> 0:07:18.960
<v Speaker 2>so people can think they have good information where they

0:07:19.000 --> 0:07:24.640
<v Speaker 2>don't have a good information that involves issues like finance,

0:07:24.680 --> 0:07:28.600
<v Speaker 2>that involves issues like health, that involves issues like national

0:07:28.680 --> 0:07:33.240
<v Speaker 2>affairs and politics, that's an issue. It's possible to become

0:07:33.280 --> 0:07:35.760
<v Speaker 2>expert if you know what to look for. So there's

0:07:35.800 --> 0:07:39.640
<v Speaker 2>a lot of variance in terms of people becoming expert

0:07:39.840 --> 0:07:43.960
<v Speaker 2>or thinking they're expert and becoming anything. But in terms

0:07:43.960 --> 0:07:47.000
<v Speaker 2>of being positive or being negative, there's a lot of

0:07:48.000 --> 0:07:50.560
<v Speaker 2>tragedy on the internet, so by comparison, you can think

0:07:50.600 --> 0:07:54.040
<v Speaker 2>well of yourself. And it is a fact that when

0:07:54.040 --> 0:07:56.120
<v Speaker 2>people go on the internet, but they post or all

0:07:56.160 --> 0:07:59.160
<v Speaker 2>the good things that happened in their life, all the

0:07:59.200 --> 0:08:02.400
<v Speaker 2>good news happened to them, but that's the only thing

0:08:02.440 --> 0:08:04.720
<v Speaker 2>they post. And if you're sitting there and you're rather

0:08:05.160 --> 0:08:08.000
<v Speaker 2>good news bad news, life you can think that you're

0:08:08.080 --> 0:08:11.360
<v Speaker 2>rather ordinary, or you can think that you're rather mundane

0:08:11.400 --> 0:08:14.160
<v Speaker 2>when everybody else is having so much more of a

0:08:14.200 --> 0:08:18.080
<v Speaker 2>best life than you are. You can think that you're

0:08:18.080 --> 0:08:21.880
<v Speaker 2>doing much worse than everybody else. So the internet just

0:08:22.000 --> 0:08:26.840
<v Speaker 2>can create a lot of different impacts on people. That's

0:08:26.840 --> 0:08:31.480
<v Speaker 2>both good and bad, truthful and untruthful. It just turns

0:08:31.560 --> 0:08:32.600
<v Speaker 2>up the volume and everything.

0:08:32.880 --> 0:08:37.679
<v Speaker 1>Yeah, we certainly see social status and wealth on display.

0:08:37.760 --> 0:08:40.959
<v Speaker 1>You never see the bills and the debt that comes

0:08:40.960 --> 0:08:44.679
<v Speaker 1>along with that. That's a really good way of describing it.

0:08:45.600 --> 0:08:50.800
<v Speaker 1>Talking about expertise, I cannot help but notice over the

0:08:50.800 --> 0:08:55.720
<v Speaker 1>past few years, especially on social media, how blithely so

0:08:55.840 --> 0:09:01.320
<v Speaker 1>many people proclaimed their own expertise. First it was on epidemiology,

0:09:01.360 --> 0:09:04.920
<v Speaker 1>then it was on vaccines, then it was constitutional law.

0:09:05.040 --> 0:09:08.360
<v Speaker 1>More recently it's been on military theory. Is this just

0:09:08.520 --> 0:09:14.680
<v Speaker 1>the human condition where we're wildly overconfident in our ability

0:09:15.120 --> 0:09:19.000
<v Speaker 1>to become experts even if we don't have that expertise.

0:09:20.240 --> 0:09:24.040
<v Speaker 2>Well, I think it is. And if it's not all

0:09:24.080 --> 0:09:27.040
<v Speaker 2>of us, at least it's some of us. That is,

0:09:27.080 --> 0:09:29.800
<v Speaker 2>we have a little bit of knowledge, and it leads

0:09:29.880 --> 0:09:32.360
<v Speaker 2>us to think that we can be expert in something

0:09:32.960 --> 0:09:36.640
<v Speaker 2>that we're quite frankly not expert in. We know a

0:09:36.640 --> 0:09:38.679
<v Speaker 2>little bit of math, we can draw a curve, and

0:09:38.720 --> 0:09:43.600
<v Speaker 2>so we think we can become expert epidemiology when we're

0:09:44.160 --> 0:09:47.600
<v Speaker 2>a mathematician or maybe a lawyer, or maybe we've heard

0:09:47.600 --> 0:09:52.840
<v Speaker 2>a little bit about evolution, and so we think we

0:09:52.920 --> 0:09:56.440
<v Speaker 2>can comment on the evolution of a virus when we're not.

0:09:58.800 --> 0:10:01.640
<v Speaker 2>We don't study viruses. We're not an epidemiologist, but we

0:10:01.760 --> 0:10:04.120
<v Speaker 2>know a little bit, and once again, we don't know

0:10:04.160 --> 0:10:06.360
<v Speaker 2>what we don't know. So we think we can comment

0:10:06.520 --> 0:10:10.040
<v Speaker 2>on another person's area of expertise because we know nothing

0:10:10.080 --> 0:10:15.240
<v Speaker 2>about the expertise contained in that other person's area of expertise.

0:10:16.080 --> 0:10:19.360
<v Speaker 2>A philosopher Freend of Mind, Nathan Valentine and I have

0:10:19.559 --> 0:10:24.760
<v Speaker 2>written about epistemic trespassing, where people in one area of

0:10:24.800 --> 0:10:27.680
<v Speaker 2>expertise who know a little bit about something decide that

0:10:27.720 --> 0:10:31.679
<v Speaker 2>they can trespass into another area of expertise and make

0:10:32.120 --> 0:10:36.240
<v Speaker 2>huge public proclamations because they know something that looks like

0:10:37.080 --> 0:10:42.160
<v Speaker 2>it's relevant, looks like it's informative, and it has a

0:10:42.200 --> 0:10:47.480
<v Speaker 2>small slice of relevance, but it misses a lot in

0:10:47.600 --> 0:10:51.920
<v Speaker 2>terms of really commenting on things like international affairs, or

0:10:52.000 --> 0:10:56.840
<v Speaker 2>economic policy, or epidemiology. But people feel that they have

0:10:56.960 --> 0:11:00.920
<v Speaker 2>licensed to comment on something that lies outside of their

0:11:01.000 --> 0:11:08.360
<v Speaker 2>actual area of expertise. Now, some of us give ourselves

0:11:08.360 --> 0:11:11.280
<v Speaker 2>a great license to do that, but I do want

0:11:11.320 --> 0:11:15.520
<v Speaker 2>to mention that this is part of being human, because

0:11:15.559 --> 0:11:18.520
<v Speaker 2>part of being human, part of the way that we're built,

0:11:19.160 --> 0:11:22.760
<v Speaker 2>is every day we do wander into new situations and

0:11:22.800 --> 0:11:25.480
<v Speaker 2>we have to solve problems. We have to innovate, We

0:11:25.559 --> 0:11:28.160
<v Speaker 2>have to figure out how do I handle this situation.

0:11:29.160 --> 0:11:34.200
<v Speaker 2>So we cobble together whatever expertise, whatever experience, whatever ideas,

0:11:34.240 --> 0:11:36.320
<v Speaker 2>we have to try to figure out how do we

0:11:36.360 --> 0:11:40.480
<v Speaker 2>handle this situation. This imagination is how we're built. It's

0:11:40.520 --> 0:11:43.920
<v Speaker 2>part of our genius. But it's a genius that we

0:11:43.960 --> 0:11:48.040
<v Speaker 2>can over apply. And what you're seeing in epistemic trespassing

0:11:48.840 --> 0:11:52.240
<v Speaker 2>is a flamboyant way in which this genius is over

0:11:52.280 --> 0:11:54.680
<v Speaker 2>applied in the public domain.

0:11:55.559 --> 0:11:57.880
<v Speaker 1>So wrap this up for us, professor, what do we

0:11:57.920 --> 0:12:03.000
<v Speaker 1>need to do to better understand and ourselves, our capabilities

0:12:03.080 --> 0:12:04.959
<v Speaker 1>and our limitations.

0:12:05.480 --> 0:12:09.560
<v Speaker 2>Well, I think when it comes to understanding information like

0:12:09.640 --> 0:12:14.400
<v Speaker 2>the Internet, like reading someone who might be an epistemic

0:12:14.440 --> 0:12:20.160
<v Speaker 2>trespassor for example, or someone who is making grand statements

0:12:20.160 --> 0:12:26.240
<v Speaker 2>about epidemiology or foreign policy or whatnot, is maybe it

0:12:26.280 --> 0:12:32.319
<v Speaker 2>would be good to familiarize ourselves with the skills of journalism.

0:12:32.920 --> 0:12:37.319
<v Speaker 2>And actually, I wish schools would teach journalism skills, or

0:12:37.320 --> 0:12:44.440
<v Speaker 2>at least fact checking skills more prominently in the American

0:12:44.520 --> 0:12:49.439
<v Speaker 2>education system. That is, as we progress in the twenty

0:12:49.440 --> 0:12:53.640
<v Speaker 2>first century, dealing with information is going to be the

0:12:53.679 --> 0:12:57.360
<v Speaker 2>skill that we all need. Finding experts and evaluating experts

0:12:57.360 --> 0:12:59.240
<v Speaker 2>who with an expert is going to be a skill

0:12:59.280 --> 0:13:01.800
<v Speaker 2>that we all need. Figuring out if we're expert enough

0:13:01.920 --> 0:13:03.360
<v Speaker 2>is going to be a skill that we all need.

0:13:03.800 --> 0:13:06.240
<v Speaker 2>And a lot of that it's really about being able

0:13:06.280 --> 0:13:10.679
<v Speaker 2>to evaluate the information that we confront and a lot

0:13:10.720 --> 0:13:13.160
<v Speaker 2>of that really boils down to fact checking in journalism,

0:13:13.320 --> 0:13:18.400
<v Speaker 2>So finding out how to do that. I wish we

0:13:18.400 --> 0:13:21.040
<v Speaker 2>could have a little bit more of those skills as

0:13:21.080 --> 0:13:25.760
<v Speaker 2>a country, or at least that that's the nudge that

0:13:25.800 --> 0:13:26.600
<v Speaker 2>I would give people.

0:13:26.800 --> 0:13:30.680
<v Speaker 1>Huh, really very fascinating. So to wrap up, having a

0:13:30.720 --> 0:13:34.760
<v Speaker 1>strong sense of self moderated with a dose of humility

0:13:35.160 --> 0:13:38.559
<v Speaker 1>is a good way to avoid disaster on Wall Street.

0:13:39.160 --> 0:13:41.880
<v Speaker 1>Adam Smith was right, if you don't know who you are.

0:13:42.559 --> 0:13:46.320
<v Speaker 1>Wall Street is an expensive place to find out. I'm

0:13:46.360 --> 0:13:50.199
<v Speaker 1>Barry Ridults and this is Bloomberg's at the moment, But

0:14:01.840 --> 0:14:02.720
<v Speaker 2>Tell me for your