Bloomberg Audio Studios, podcasts, radio news. The financial writer Adam Smith once wrote, if you don't know who you are, this is an expensive place to find out. He was writing about Wall Street and investing, and his insight is correct. If you don't know who you are, if you don't understand what you own, how much leverage you're undertaking, how much risk you have, this is a very expensive place
to learn that lesson the hard way. I'm Barry Ridhelts and on today's edition of At the Money, we're going to discuss self insight, our ability to know ourselves and understand our abilities. To help us unpack all of this and what it means for your portfolio. Let's bring in Professor David Dunning of the University of Michigan. He is the author of several books on the psychology of self, and if his name is familiar, he is the Dunning
in Dunning Krueger. Welcome, professor. Let's just ask a simple question, how come it's so hard to know ourselves?
There are many, many reasons, and thank you for having me well. In many reasons, there are problems annoying ourselves in terms of our character and annoying ourselves in terms of our confidence, in terms of our character, we overplay how much agency we have over the world. We're not as influential as we think. And in terms of confidence, we overestimate how much we know. Now, each of us knows a tremendous amount, but by definition, our ignorance is infinite.
And the problem with that is our ignorance is also invisible to us. That creates an issue.
So what other roadblocks and detours are there on the path to knowing thyself?
Well, it's the invisible ability of our flaws and our foibles. Some of it is the world. It's not a very good teacher. It doesn't tell us. Its feedback is a chancy off, and its feedback is invisible. What doesn't happen to you as opposed to what does happen to you? What people tell you to your face is different from what they're saying behind your back. So the information we get our information environment is either incomplete or it's misleading.
And beyond that, we're co conspirators. We engage in self deception, We protect our egos. We are active in the duplicity in terms of getting to accurate self knowledge.
We've discussed before any decision or plan we make requires not one, but two judgments. The first judgment is what the item we're deciding about it, and the second judgment is our degree of confidence, assessing whether or not our first judgment was valid. Which is the more important of the two.
It should be the second one, but we tend to focus on the first one. We tend to focus on our plans the scenario, and we tend to ignore or neglect the second one, the fact that life happens and life tends to be unexpected. We should expect the unexpected, and so we should have contingency plans. We should be
sure to think about what we don't know. We should be sure to think about what typically happens to other people and have plan b's and Plan c's for when those sorts of things can happen, or at least have plans for unknown things that can happen. Because the one thing we know is that unknown things will happen, and everything in the past has always been slow than we expected. We should expect that everything in the future is going
to be expected. But we tend to overweight give too much attention to our plans and not think about the barriers and not think about the unknown barriers that are certainly going to hit us in the future. That's what I mean by the fact that we tend to give too much way to our agency and the world, not give credit to the world and its deviousness in thwarting us.
So let's talk a little bit about how illusory our understanding of our own abilities are. Is it that we're merely unskilled at evaluating ourselves or are we just lying to ourselves.
We're actually doing both. I mean, there are two layers of issues. One layer of issues is we're not very skilled at knowing what we don't know. I mean, think about it. It's incredibly difficult to know what you don't know. You don't know it. Could you know what you don't know? That's a problem. We're not very skilled at knowing how good our information environment is, how complete our information is.
That's one issue. The second issue is what's it called just referred to as the motivated reasoning issue, which is just simply then we go from there and we practice some motivated reasoning self deception, wishful thinking. We actively deceive ourselves in how good we think our judgments are. We bias our reasoning or distort our reasoning toward preferred conclusion conclusions. Yep, that that stock excuse me, will succeed. Our judgment is
absolutely terrific. This will be a wonderful investment year. There's nothing but a rosy stock market ahead for us. That's the second layer. But there are issues before we even get that second layer, which it's just simply we don't know. We don't know, and it's very hard to know what we don't know.
So we live in an era of social media. Everybody walks around with their phones in their pockets. They're plugged into everything from TikTok to Instagram, to Twitter to Facebook. What's the impact of social media on our self awareness of who we are? Has it had a negative impact?
I think social media has had all sorts of impact, and I think what it's done is create a lot of variance, a lot of spread in terms of the accuracy of what people think about themselves and positivity and the negativity of what people think about themselves. There's just a lot of information out there, and people can truly
become expert if they know what to look for. But there's also a lot of possibility for people to come truly misled if they're not careful or discerning in what they're looking at, because there's a lot of misinformation and there's a lot of outright fraud in social media as well.
So people can think that they're expert because there's a lot of plausible stuff out there, but there's a lot more in the world that's plausible than is true, and so people can think they have good information where they don't have a good information that involves issues like finance, that involves issues like health, that involves issues like national affairs and politics, that's an issue. It's possible to become
expert if you know what to look for. So there's a lot of variance in terms of people becoming expert or thinking they're expert and becoming anything. But in terms of being positive or being negative, there's a lot of tragedy on the internet, so by comparison, you can think well of yourself. And it is a fact that when people go on the internet, but they post or all the good things that happened in their life, all the good news happened to them, but that's the only thing
they post. And if you're sitting there and you're rather good news bad news, life you can think that you're rather ordinary, or you can think that you're rather mundane when everybody else is having so much more of a best life than you are. You can think that you're doing much worse than everybody else. So the internet just can create a lot of different impacts on people. That's both good and bad, truthful and untruthful. It just turns up the volume and everything.
Yeah, we certainly see social status and wealth on display. You never see the bills and the debt that comes along with that. That's a really good way of describing it. Talking about expertise, I cannot help but notice over the past few years, especially on social media, how blithely so many people proclaimed their own expertise. First it was on epidemiology, then it was on vaccines, then it was constitutional law.
More recently it's been on military theory. Is this just the human condition where we're wildly overconfident in our ability to become experts even if we don't have that expertise.
Well, I think it is. And if it's not all of us, at least it's some of us. That is, we have a little bit of knowledge, and it leads us to think that we can be expert in something that we're quite frankly not expert in. We know a little bit of math, we can draw a curve, and so we think we can become expert epidemiology when we're a mathematician or maybe a lawyer, or maybe we've heard a little bit about evolution, and so we think we can comment on the evolution of a virus when we're not.
We don't study viruses. We're not an epidemiologist, but we know a little bit, and once again, we don't know what we don't know. So we think we can comment on another person's area of expertise because we know nothing about the expertise contained in that other person's area of expertise.
A philosopher Freend of Mind, Nathan Valentine and I have written about epistemic trespassing, where people in one area of expertise who know a little bit about something decide that they can trespass into another area of expertise and make huge public proclamations because they know something that looks like it's relevant, looks like it's informative, and it has a small slice of relevance, but it misses a lot in terms of really commenting on things like international affairs, or
economic policy, or epidemiology. But people feel that they have licensed to comment on something that lies outside of their actual area of expertise. Now, some of us give ourselves a great license to do that, but I do want to mention that this is part of being human, because part of being human, part of the way that we're built, is every day we do wander into new situations and we have to solve problems. We have to innovate, We have to figure out how do I handle this situation.
So we cobble together whatever expertise, whatever experience, whatever ideas, we have to try to figure out how do we handle this situation. This imagination is how we're built. It's part of our genius. But it's a genius that we can over apply. And what you're seeing in epistemic trespassing is a flamboyant way in which this genius is over applied in the public domain.
So wrap this up for us, professor, what do we need to do to better understand and ourselves, our capabilities and our limitations.
Well, I think when it comes to understanding information like the Internet, like reading someone who might be an epistemic trespassor for example, or someone who is making grand statements about epidemiology or foreign policy or whatnot, is maybe it would be good to familiarize ourselves with the skills of journalism. And actually, I wish schools would teach journalism skills, or at least fact checking skills more prominently in the American
education system. That is, as we progress in the twenty first century, dealing with information is going to be the skill that we all need. Finding experts and evaluating experts who with an expert is going to be a skill that we all need. Figuring out if we're expert enough is going to be a skill that we all need. And a lot of that it's really about being able to evaluate the information that we confront and a lot of that really boils down to fact checking in journalism,
So finding out how to do that. I wish we could have a little bit more of those skills as a country, or at least that that's the nudge that I would give people.
Huh, really very fascinating. So to wrap up, having a strong sense of self moderated with a dose of humility is a good way to avoid disaster on Wall Street. Adam Smith was right, if you don't know who you are. Wall Street is an expensive place to find out. I'm Barry Ridults and this is Bloomberg's at the moment, But
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