Curse of Knowledge
Sometimes, knowing more is worse than knowing less. Investing is a lifelong learning process. Every day I am learning new things about investment. I am constantly reading up the newspapers and financial books to gain insights. In addition, I will also meet up with my friends to discuss about investment too, in a way, I’m really fortunate to have people to share my ideas with. Weirdly speaking, sometimes I do have trouble trying to convey some of my ideas to people with knowledge in investment world. It is especially difficult when they are people who are keen about investments and surprisingly, I find it really easy to talk about investment to people who have no knowledge. This actually reminds me of my marketing professor who says that the reason why he chooses to teach marketing to undergraduates rather than graduates is simply because we know nothing about marketing. Curse of knowledge theory seeks to explain such phenomenon. The theory is seen in a scenario where a group of tappers is asked to tap some music beats and a group of listener is asked to guess the music that the tappers are tapping. To the tappers, it seems really easy to guess the music that they are playing but not to the listeners. Try it with your friend and believe me, it is not easy to guess it. The reason behind this is because the tappers have the music playing in their head and they tend to feel that the beats that they are beating make sense. Knowing more is worse than knowing less. Using investment as an example, when someone knows a fair bit of investment knowledge, he tends to believe what he already knows and feels that others will probably agree with him as well. Perhaps, this is another ego issue at play. However putting ego aside, a person will tend to reject certain ideas that totally destroy his original belief. We all live in a system. In the investment world, most people will tend to live in famous successful systems such as Buffettology. In fact, such successful system makes people really rigid and less open to new ideas. I do have huge problems talking to people who believe in Warren Buffett. Am I suffocated by curse of knowledge as well? It is possible since I also believe in what I think is true. I don’t deny Buffettology of course, but I feel that there is something more to it. This is also prominent in the academia world. It will be the equivalent of Behavioral Finance versus Modern Portfolio Theory. Clearly, there are some areas where behavioral finance is trying to rectify in the modern portfolio theory. Its effort is nonetheless futile as modern portfolio theory advocates go on about tweaking their theory and insist that they are right. Alright I’m not really an academia person and will never go into the academia world nonetheless. However this is something really important to investment today. We can’t be stuck with what we know or rather what we think we know about investments. We have to think about the improbable and be open to really crazy phenomenon. Japan market is one such classic example. No one can successfully explain this phenomenon but it doesn’t matter. What matter is, we should be prepared to see really weird things that go beyond our understanding. By Toh Chin Sheng
VP, Research & Education of NTU Investment Interactive Club ~disclaimer:The information, statistical data and opinions contained herein are of the author’s own, and have been obtained from sources which he/she believes to be reliable, but it does not represent that they are accurate or complete, and they should not be relied upon as such. All opinions expressed and data provided herein are subject to change without notice. The securities mentioned in this report may not be suitable for all types of investors. ALL investments involve different degrees of risk. You should be aware of your risk tolerance level and financial situations at all times. Read any and all prospectuses carefully before making any investment decisions. As you know, a recommendation, which you are free to accept or reject, is not a guarantee for the successful performance of an investment and we are expressly prohibited from guaranteeing accounts against losses arising from market conditions. NTU-IIC and its members will not be held liable in any manner for any losses arising directly or indirectly from investment decisions undertaken based on the information/statistical data/opinions expressed. |
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Anne
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I agree with you. I would say that this is like a trade off. When someone gains more knowledge, he is in fact gaining more experience and this can cause a reduction in his ability to accept new ideas. He is just like a half filled glass of water that can only have that little space left for additional water. A person who is inexperience on the other hand is like an empty glass that has the ability to take in a lot more volume of water. I guess the only way for an experience person to be more open to new ideas is to empty out some water from his glass. In other words, try to look at things at a different angle? Perhaps...