Bad Advice

Bad Advice and How to Tell Good Solutions, by Mark Chussil

I commend to you Joel Lovell’s courageous and perspicacious essay “What Do They Know?” Subtitled “True Confessions of a Conflicted Money Guru,” Mr. Lovell muses about what to tell people about finances during the crisis and wonders why some public advisors seem confident despite being wrong. His essay is a fine companion to Sharon Begley’s “Why Pundits Get Things Wrong“.

As my readers know, I’ve wondered for a long time why smart people make bad decisions. Yes, there is the media-mogul preference for sound bites and the public’s clamor for tell-me-what-to-do-oh-oracle advice, but such responses don’t address the question. Public prognosticators don’t give bad recommendations because people want sound bites or oracular advice; the prognosticators would rather be right than wrong. The question remains, why do they get it wrong?

I think there are a few reasons why they (and the rest of us) get it wrong.

Note that those reasons suggest in what directions we should seek long-term improvement.

Accountability and oversight, not so hopeful for more than short-term symptomatic relief. The problem is, no matter how sternly we apply oversight and hold people accountable, we’ll continue to make bad decisions if we continue to rely on misleading decision-making techniques.

Regulatory change, more hopeful to the extent that it curbs decision-making that is known or can reasonably be expected to produce negative outcomes. (That’s as opposed to regulatory changes that prescribe specific behavior or technologies, about which I make no comment here.) Profits for today often override prudence for tomorrow (hence mortgages get written that people cannot pay back), so it can be beneficial to ensure that prudence is part of the equation. It’s worth remembering that we already accept such regulations in numerous areas of our lives, including licensing healthcare professionals, FAA safety standards, and insurance on bank deposits.

Just as we’d be better off preventing cancer than treating it, we’d be better off making good decisions than fixing bad ones. We need better-quality decisions, and better-quality decisions come from better-quality decision-making. As we assess proposed solutions to crises big and small, let’s start by asking how each proposal will help us make better decisions.

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