By Sheryl Sutherland*
One of my favourite guys wrote a best seller; "Thinking Fast and Slow" (Daniel Kahneman a psychologist and economist). His book puts forward the premise that we have two ways of thinking – rapid “gut” responses, and slower more reflective thinking. He suggests that the first usually trumps the second (my little book on this is Money, Money Money, Ain’t it Funny).
He points out that our thinking rational brain loses out more often than not to our intuition or gut feeling. The gut feeling is the one that responds to social media, science being ignored, and political polarisation.
You don't believe me? Consider the following problem; A bat and a ball cost $110 in total. The bat costs $100 more than the ball. What does the ball cost? Did you say $10? Most do, as this is the response that pops into our minds intuitively. But the correct answer is $5. (If the ball costs $10, then the bat would need to cost $110, since it is $100 more than the ball. In total, that is $120.)
What this problem illustrates is the strength of our ability to reason if you got it right and the potential pitfalls of our intuition. To get the correct answer when first encountering this problem, you generally have to spend some time and effort thinking about it. Intuition isn’t good enough.
People who deliberate are also better able to distinguish between “fake news” and real news, and are less prone to seeing and accepting pseudo-profound bullshit, to holding beliefs that are counter to the scientific consensus on several issues, to believing falsehoods about COVID for example, and to believing in false conspiracies.
Intuition isn’t good enough when we invest, we need to take the time to consider, to be a deliberative thinker, to plan, to strategise. Being a more deliberative thinker is associated with better financial literacy. Deliberative people are those of you who are smart enough to have a financial planner – preferably a woman (and yes women are great at this; if you want the studies I have them of course!).
*Sheryl Sutherland is director of The Financial Strategies Group, and author of Girls Just Want to Have Fund$ – Every Women’s Guide to Financial Independence, Money, Money, Money Ain’t it Funny – How to Wire your Brain for Wealth, and co-author of Smart Money – How to structure your New Zealand business or investments and pay less tax. You can contact her here.
4 Comments
Deliberative people are those of you who are smart enough to have a financial planner – preferably a woman (and yes women are great at this
I don't agree with this. One has to weigh up the potential benefits / costs of a financial planner vs the value added by a financial planner. For those who are time poor, financial advice can be important, but the very wealthy get to pick from the cream of the crop of financial planners, who will not deal with the hoi polloi.
It seems to me that most financial planners cannot deal with the question of Bitcoin in a portfolio (so makes a good litmus test): 1. They cannot estimate its future value or approx weighting; and 2. BTC pays no dividend to financial planners (for now). F'more, I suspect few of them would have forecast BTC as the best performing asset of the past 10 years.
Nassim Taleb:
"Never take advice from anyone in a tie. They'll bankrupt you. Don't ask a general for advice on war, and don't ask a broker for advice on money. Think about the derivatives mess—buying credit derivatives from these banks was like buying insurance for the Titanic from people who were on the Titanic!
Individuals should think about the worst-case scenarios and plan for them. The world will be crazier than you think it will be. Put money away, and then you can live with much more freedom."
Was going pretty well until it rammed through the usual establishment propaganda late in the piece.
Mankind has only ever progressed by questioning established "scientific consensus". Certainly, in the case of Covid, the scientific consensus as expressed through govt actions was downright idiotic at times. You don't have to be a conspiracy theorist to understand that. Stuff that is happening right now for example like the FDA re-authorising Ivermectin for use in treating Covid, simply isn't being reported by the mainstream media. We aren't trusted with a lot of information.
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