Learning What I Don’t Know
As professionals, we often view our decision making to be rational and sound. Unfortunately, this is often farther from the truth.
To test this, go back in time and ask yourself these questions:
- In the OJ Simpson trial, did you correctly predict the verdict?
- When President Bush decided to attack Al Qaeda and Osama bin Laden in Afghanistan, how long would you have predicted it would take the mighty United States military to either capture or kill Osama bin Laden?
- When the Bush administration made their case for attacking Iraq and Saddam Hussein, did you think Iraq had weapons of mass destruction?
- In the Clinton administration, the crime rate rapidly declined at a time when more police were being put on the streets. Did putting more police on the street cause the crime rates to decline?
If you’d like to learn how an economist went about answering the crime rate question and reaches conclusions with cold hard data, pick up a copy of Freakonomics by Steven Levitt. It’s an interesting read. And no, he concluded that police had nothing to do with lowering the crime rate.
OK, these were loaded questions so let’s take an easier one. Over the last 5-10 years, how has your stock portfolio performed? Have you picked more winners than losers? Be honest…
Personally, I haven’t done very well on these questions either. And my stock portfolio is full of losers despite the research and fact-based approach that I took in selecting them. At least I can roll-over my tax losses.
It’s very hard to know what we don’t know.
Psychologists claim that our decision making is fraught with overconfidence, herd mentality, anchoring, and confirmation bias. The overconfidence component places enormous blinders on how we see the world. The anchoring leads to bias in our hypothesis as first impressions become lasting impressions (e.g., this is the way it’s done). And then confirmation bias leads to a self-fulfilling prophesy.
In the Bush administration, the advisors were all singing out of the same prayer book and absence of dissent is so blatantly obvious to outsiders. Presumably, George pursues conflict avoidance and prefers homogenous thinking and loyalty. In hindsight, the absence of vigorous conflict and healthy debate frequently lead to faulty decisions. Quite frankly, I think our current President, Emperor Donald Trump, can be guilty of this same character flaw.
Each and every day, I talk to accountants that know that they need to make changes in their practice because they are working too many hours and not making what they are worth. And because most accountants are skeptical by nature and then trained to be even more skeptical, it’s really hard to get them out of the rut and lead them to higher ground.
For example, most of the accountants that I speak to are realizing less than $150 per hour on their services. And when I ask them if they’d like to learn how to realize rates above $200 per hour, they become skeptical. While they’d love to increase their hourly realization to $200+ per hour, they can’t get out of their own way and take a baby step towards improving their profitability. To allay their skepticism, I give the prospective accountant a couple references, which they call for confirmation, and they hear the same message. In one example last week, the reference that I provided told the prospective accountant that he’s realizing $300-400 per hour using our approach. And yet, the prospective accountant is still struggling with the decision because what’s he currently doing can’t possibly be wrong. Or can it? Quite frankly, it’s comical because it’s hard to lead a horse accountant to water. Of course, it’s hard to know what we don’t know.
In another example, I’ll be talking to an accountant about acquiring clients from the internet and he’ll say, I’ve had a website for years and never acquired a client from the internet. Sorry, but that doesn’t mean you are doing it properly. Then I ask them to see the website. Upon inspection, the website poorly represents the firm, is not search engine optimized, has no pictures and poorly written content, and their phone number is MIA. And shortly after we develop their website using the proper techniques, many will immediately call after acquiring their first client from the internet. It’s hard to know what we don’t know.
Going forward, here are some tips to help you learn what you don’t know:
- Break the status quo bias – Push yourself to consider change and crush the “that’s the way we’ve always done it” mentality.
- Stop the “herd” mentality – Stop the tendency to do what everyone else “seems” to be doing.
- Avoid overconfidence in decision making – Crush the “it’s my way or the highway” attitude. Your way might even be wrong. Heaven forbid.
- Eliminate your self-fulfilling prophesy – Eliminate the urge to say “we tried and it doesn’t work.”
Take some action today to learn what you don’t know and make some changes for your own benefit.