Eyes Wide Open: How to Make Smart Decisions in a Confusing World

I’ve done the round of doctors. From London’s Harley Street to New York’s Mount Sinai, from Chicago’s Mercy to the Mayo Clinic in Minnesota. I’ve been prodded and pinched, have put on and taken off paper knickers and back-tying hospital gowns more times than I’d care to remember. I’ve been ultrasounded, X-rayed, MRI’d and CT’d with contrast and without. My blood has been drawn so often we’re now looking for veins in my feet. I’ve swallowed a camera in a capsule, seen my guts in slo-mo and had tubes down my throat. I’ve been tilted and shocked, my hands have been heated and then plunged into ice. I’ve been pitched a variety of treatment plans.

Surgeons suggest a range of procedures, from exploratory fact-finding missions to the immediate removal of my (perfectly healthy, and I feel irrelevant to my symptoms) gall bladder this very week. The Professor of Nutrition (so revered he has a three-month waiting list) suggests I eat mainly sugar. The world-renowned gastroenterologist tells me of his personal success with Prozac, and recommends very strongly that I try that. At the impressive Mayo I have two weeks of tests and examinations, yet they suggest I come back and be tested more.

But I don’t want to live off sugar, am keen to pass on Prozac – my mental state is fine, while the famous doc seemed pretty loopy – and I would rather not succumb to more investigations. As for surgery – not that appealing, especially as I’m feeling so very weak. And what are they actually looking for? I’m not up for having body parts removed on a whim. And even if surgery is the right decision, which operation? And which surgeon?

What to do? Who to put my trust in? Which expert to pick? What to decide?

Men in White Coats

In an age of disorder, deluge and disruption, a time when we are ever more conscious of marketers’ attempts to mislead, we crave answers and certainty. And experts sell both in spades.

Scientists, professors, doctors, lawyers, investment advisers, management consultants, specialists in a wide range of domains and fields. Men (typically) in white coats or pinstripe suits, usually grey-haired – you know who I’m talking about: the authority figures we see on our television screens or read about in our morning newspapers. The kind of people deemed ‘trusted sources’ on a particular topic, usually but not always their own. We find their utterly self-confident, parent-like aura very reassuring. When they tell us what we can and should do, or what we can’t, it’s a real relief.

I mean, ever since the Enlightenment we’ve acknowledged, haven’t we, that science and logic are supremely privileged forms of knowledge, to be much revered? And it’s experts who know the passwords that provide access to this privileged world. When an expert confidently delivers his opinion, we can almost see centuries of theories, rules, principles, experiments and formulae being channelled through him, in a special secret language that we, the non-experts, are not privy to.

We take these words of supposed wisdom at face value – we can’t understand what the experts are on about most of the time, but we nod anyway, and accept what we are hearing. Bludgeoned by their stats and theories, pacified by their institutional affiliations and the letters after their names, reassured by their self-confidence, we surrender our intellect, instincts and power to them.

They know the answers. We do what we are told. It’s a tyranny of the experts.

This is no exaggeration.

In a recent experiment, a group of adults were asked to make a financial decision while contemplating an expert’s advice. An fMRI scanner gauged their brain activity as they did so.1 (#litres_trial_promo)

The results were extraordinary: when confronted with the expert’s advice, it was as if the independent decision-making parts of the participants’ brains pretty much switched off.

An expert speaks, and it’s as if we stop thinking for ourselves. It’s a really scary idea.

Yet we don’t even suspect that there’s a problem. Indeed, studies show that the vast majority of college-educated, high-earning, informed adults, CEOs, professionals, executives – people with clout, experience, wisdom of their own, people perhaps like you and me – trust experts more than any other group in society.2 (#litres_trial_promo)

But remember how easily misled we were by Professor Miner in the previous Step …

The Sham in Expert’s Clothing

Even fellow experts prove to be overly trusting. In a revealing experiment first conducted in 1972 by a group of professors of medical education from the Universities of Southern Carolina and Southern Illinois, and repeated in many other contexts since, ‘Dr Myron L. Fox’ supposedly an authority on ‘the application of mathematics to human behaviour’, but in reality an actor named Michael Fox, addressed a lecture hall full of professionals from his supposed field – psychiatrists, psychologists and social workers.

‘Dr Fox’ spoke on the subject of ‘Mathematical Game Theory as Applied to Physician Education’ for a whole hour. He then took half an hour of questions. From the feedback forms collected after the lecture, we know that his talk was extremely well received: ‘Good analysis of subject’, ‘Excellent presentation’, ‘Extremely articulate’ were among the comments made. This despite the fact that the material he delivered was actually meaningless – full of ‘double talk, neologisms, non sequiturs, and contradictory statements … interspersed with parenthetical humor and meaningless references to unrelated topics’.3 (#litres_trial_promo) Other studies have similarly found that the more verbose an academic is, the more competent he or she is taken to be.4 (#litres_trial_promo)

In this case, not a single audience member saw through the hoax. One even claimed to have read Dr Fox’s publications.

The experts’ accessories – the doctor’s stethoscope, the fund manager’s pinstripe suit, the professor’s lectern, the framed certificates and convoluted lingo – all serve as proxies for their reliability and trustworthiness, and protect the frauds, fakes and incompetents as well as your everyday expert.

From Monkeys to Garbage Collectors

But experts do get things wrong. A lot wrong. I’m not talking here about tricksters like Dr Fox. Or fraudsters such as Hwang Woo Suk, the South Korean stem-cell researcher who claimed to have created the world’s first cloned human embryos, but hadn’t. Or the 2 per cent of scientists who admit to cheating outright – falsifying or fabricating their results.5 (#litres_trial_promo) I’m talking about your run-of-the-mill expert and run-of-the-mill error.

Did you know that studies have shown that doctors misdiagnose one time in six?6 (#litres_trial_promo) That of the one in twelve patients who die in hospital because of misdiagnosed ailments, half would have survived had the diagnosis been correct?7 (#litres_trial_promo) Or that 50,000 hospital deaths each year in the US and Canada could have been prevented if the real cause of illness had been correctly identified?8 (#litres_trial_promo)

Did you know that you are more likely to file your tax returns correctly if you do it yourself than if you hire a tax adviser to do it for you?9 (#litres_trial_promo) That 70 per cent of mutual-fund managers underperform the market?10 (#litres_trial_promo) Or that in Germany up to 80 per cent of all long-term financial investments are terminated prematurely because of the unsuitable advice consumers have been given by their supposedly expert investment advisers (unsuitable advice which is estimated to cost German consumers twenty to thirty billion euros every year)?11 (#litres_trial_promo) And how about the Cranfield Study of companies that had used management consultants? Two-thirds considered the advice they’d been given to be at best useless, at worst actively harmful.12 (#litres_trial_promo)

Then there are the forecasts of economic or political experts.

In 1984 The Economist set a challenge to four different groups to predict what the world economy would look like in ten years’ time. The groups were comprised of four former finance ministers, four chairmen of multinational companies, four Oxford University students, and four London dustmen. Each group was set the same questions relating to inflation, economic growth and the pound–dollar exchange rate. They were also asked to predict when Singapore’s GDP per head would overtake Australia’s.

Ten years later, the magazine reviewed the predictions to see which group had made the most accurate forecasts. Four points were given for the most accurate answer to each question, three for the second best, two for the third best, and one for the worst.

Who got the highest score?

The dustmen. As for the finance ministers – they came last.13 (#litres_trial_promo) No wonder the global economy is in the state it’s in.

When it comes to crystal-ball gazing, experts frequently get it wrong.

Some of the biggest moments in the past fifty years – the 1973 oil crisis,14 (#litres_trial_promo) the fall of the Soviet Union, 9/11, and most recently the Arab Spring – were missed by traditional intelligence experts, whilst a study of 82,000 predictions by 284 experts over a sixteen-year period, on issues ranging from the future of the then USSR to Saddam Hussein’s invasion of Kuwait, revealed that the experts got no more right than a monkey randomly sticking a pin on a board. ‘It made virtually no difference whether participants had doctorates, whether they were economists, political scientists, journalists or historians, whether they had policy experience or access to classified information, or whether they had logged many or few years of experience,’ wrote the author of the study.15 (#litres_trial_promo)

It’s not just metaphorical monkeys who outdo experts, however. The Observer’s 2012 Investment Challenge pitted a team of professional investment advisers against Orlando, a flesh-and-blood ginger tomcat. Each began with a notional £5,000 to invest in five companies from the FTSE All-Share Index. Every three months they were allowed to exchange any stocks with others from the index.

While the professionals used their expert knowledge and decades of investment experience to guide their decisions, Orlando selected his stocks by throwing a toy mouse on a grid of numbers, each representing a different company.

At the end of the year, the professionals’ portfolio was worth £5,176.60 – a 3.5 per cent return on their investment. And how did Orlando do? He ended up with £5,542.60, a return of almost 11 per cent.

As Justin Urquhart-Stewart, one of the expert wealth managers, good-humouredly said, ‘It’s time to crack open the Whiskas. The cat’s got talent.’16 (#litres_trial_promo)

Still got experts on that pedestal?

From Alan Greenspan to Bernie Madoff

If so …

What about the financial crisis?

It’s really quite absurd, when we reflect on it now, how much trust was put in the hands of those who were considered ‘experts’ in the world of finance. But it was.

From rating agencies to economists, from Alan Greenspan to Bernie Madoff, the proclamations of those deemed experts were taken at face value. On the rare occasions that they were challenged, the very few who dared to do so were ignored or even fired.

So, investments as poor or risky as Icelandic banks and mortgage-backed securities were A-rated by Moody’s and Standard & Poor’s, and therefore deemed safe to buy and sell, without anything like the appropriate caveats or enquiry, simply because these supposedly ‘expert’ agencies had given them the stamp of approval.

Equally shockingly, sophisticated investors like Banco Santander and Bank Medici invested in a fund that promised a steady return of over 10 per cent, despite the near-impossibility that anyone could deliver such steady performance, simply because of the faith they put in one man – Bernie Madoff.

Meanwhile, economic mavens such as Alan Greenspan and Larry Summers sang the praise of derivatives – Greenspan actually claimed that they made the global system less risky – despite a whole host of warnings on their dangers.17 (#litres_trial_promo) And fellow economists claimed that a bankruptcy like that of Lehmann Brothers could be expected only once every billion years, even though similarly ‘impossible’ events, such as the collapse of the LTCM hedge fund and the 1987 stock-market crash, had occurred twice in the previous fifteen years.18 (#litres_trial_promo)

Experts were taken at face value simply because they were perceived as being expert.

If only those oh-so-smart economists, with their oh-so-slick theories about the efficiency of markets and the rationality of those who inhabit them, had been properly interrogated. If only those financial gurus – whether Alan Greenspan, former Chairman of the US Federal Reserve, with his endless proclamations about the safety of the financial system, or Bernie Madoff, fund manager extraordinaire, with his promises of steady returns of over 10 per cent – had been viewed as fallible humans, rather than haloed mavens. If only the rating agencies, Standard & Poor’s, Fitch and Moody’s, had been seen for what they were – conflicted organisations, ill suited to objectively assess hyper-complicated situations – and then been treated with appropriate scepticism.

If only all the supposed experts had been challenged, and the dissenting views at least been considered. There were even some hedge funds before the crisis, big names such as Paulson & Co. and Lansdowne Partners, who were ‘short the market’, thereby signalling that they thought we were heading for a fall. Yet, as one of the principals pointed out to me, no one ever asked them why they were thinking differently from most others in the market, and had taken such a position.

And if only experts in the worlds of finance and economics weren’t so prone to move in packs, and dissenters weren’t so often sidelined, then a vast edifice of flawed models, regulatory prescriptions and computer simulations would never have been established; Park Avenue dowagers, Holocaust survivors and ordinary taxpayers would not have faced financial ruin; and the world would not have been plunged in to a far-reaching financial maelstrom.

Let me get something clear here. It’s not as if experts have not powerfully contributed to our world and our knowledge. Of course they have, and they continue to do so. Nor am I suggesting that years of training, technical skill and deep immersion in a particular area count for nought – of course these things matter. What I am saying is that the conflation of expert with unchallengeable guru, experience with accolades, scientists with exemplary scientific method, and claims of certainty with actual veracity, puts us in peril.