“Beware of false knowledge; it is more dangerous than ignorance.” ‐‐ George Bernard Shaw
False knowledge is at the root of many ill‐conceived adventures and investments. It is also believed to be the genesis of the phase “Hey guys, watch this!” No phrase in the history of man has been such a clear signal of impending embarrassment, dismemberment, trips to hospital rooms, and apologies to spouses, family and neighbors.
I recall one evening in high school when I uttered the cursed phrase just before I tried a trick shot on a pool table – a shot I had executed flawlessly in the past. In one stroke of the cue I ripped the table felt and sent the cue ball careening into my opponents gentlemanly parts. The memory still brings a tear to my eye, most likely to my opponents as well.
We make snap decisions of adequacy not because we are dumb, but because we are saddled/gifted with a brain that makes quick inferences, enabling us to make quick decisions. This is called heuristics. Heuristics is a process for problem solving by inference, using our collective personal experience and knowledge to make rapid decisions. It is a part of primitive brains. Holding a committee meeting when threatened by a saber tooth cat, I am told by archeologists, leads to a negative selection pressure on the committee members.
Investors also make snap decisions. I remember all too well watching commodities and stock prices looking for patterns, and upon observing a pattern, placing a trade. I did not poll a committee or seek consensus; I saw what I needed to see and acted upon it. I also had a good gut instinct, which sometimes told me not to trade. For whatever reason, the times I relied on my instinct it was more often than not correct. So how does this relate to false knowledge? False knowledge is impaired information that makes us less capable of making informed decisions, and we need to make a lot of snap decisions in our lives. Snap choices made with impaired basic knowledge lead, upon reflection of a bad outcome, to the dope slap on the head.“Ugh I should have known better”. We have all had this feeling, and that is where itcomes from.
• Heuristics is the process of making snap choices.
• Snap choices are based upon our personal knowledge and experience.
• If our initial knowledge is impaired, our snap decisions are impaired.
• If you reflect upon snap decisions with the feeling you should have known better, you know that some of your basic knowledge is incongruent with the choices you are making.
It’s an interesting assessment ‐‐ try it. Try to remember those instances of “ugh, I should have known better,” and see if you can identify what basic knowledge needs to be examined.