On Topic: Knowing what we don't know

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In 1995, a robber named McArthur Wheeler stuck up a pair of Pittsburgh banks without the benefit of a ski mask or any other paraphernalia one generally uses to disguise one’s identity while committing a felony in the middle of the day. Moreover, he did so in full view of surveillance cameras, such as the kind that have been known to be standard operating equipment in financial institutions in Pittsburgh and most everywhere else for quite some time.

When later arrested and asked why he didn’t think he could be identified by the footage captured on camera, a perplexed Wheeler replied, “But I wore the juice.”

He somehow had come to believe that smearing lemon juice on his face would make him — get this — invisible to the camera.

A few years later, Justin Kruger and David Dunning used this anecdote — laugh now, if you wish, but just you wait — at the top of their paper, “Unskilled and Unaware of It: How Difficulties in Recognizing One’s Own Incompetence Lead to Inflated Self-Assessments.” In bringing home their point, they quoted Charles Darwin: “Ignorance more frequently begets confidence than does knowledge.”

(You can read their paper at http://psych.colorado.edu/~vanboven/teaching/p7536_heurbias/p7536_readings/kruger_dunning.pdf)

In other words, we’re not always as smart as we think we are.

To expand on that notion, psychologists Kruger and Dunning asserted that the same smarts/common sense/whatever it takes to help us learn stuff in the first place — to be smart about a certain subject, to know what the heck we’re talking about — also is what we need to know to be able to judge whether we actually know what we think we know. Are we smart enough to be able to tell how dumb we are?

They demonstrated this by rounding up 65 Cornell University undergrads to give them a bunch of quizzes — on grammar, logic and about whether a joke is funny or not. (Really.) Then they asked the participants to say how well they think they did.

They found that those who scored at the bottom 25 percent of the quizzes believed they’d scored in the 60th percentile. The test has been done over time with other guinea pigs, too, Dunning said earlier this year on the radio program “This American Life” — with medical professionals, supervisors, et al. — with the same outcomes.

In other words, people who get Fs think they’re getting Bs. Ignorance — as with McArthur Wheeler, the guy smelling of lemon, I guess — makes us overconfident, Dunning said.

The same is true about what we believe we know about money and financial decision making, according to a nationwide study by the Finra Investment Education Foundation called “Financial Capability in the United States 2016.” Of the more than 25,000 people who took its most recent online quiz, almost two-thirds got four out of five of its long-standing questions wrong.

By contrast, 42 percent for the answers right in 2009, and in 2012 about 39 percent were correct. Those numbers, as you can see, are going south. (Those results can be found at http://www.finrafoundation.org/programs/capability/.)

The quiz included questions about how much you’d have to pay in interest for a loan, is buying stock in a single company safer than investing in mutual funds — that sort of thing.

Here’s some good news, though: Iowa respondents in the most-recent survey scored better than the rest of the nation on average. Forty-seven percent of Iowans got four or more answers correct, compared to 37 percent of the rest of the country, for example.

On the other hand, though we did better in terms of credit card shopping, we weren’t that much better — 58 percent of Americans said they didn’t compare credit card rates and offers in contrast to 57 percent of Iowans who didn’t bother to look before they signed up.

And then there’s this. Lots of people are concerned about having enough money when they retire so they won’t have to eat cat food, as my broker once told me by way of a tough-love threat. But guess how many of the Finra survey respondents said they’ve put some effort into calculating how much money that actually would be.

The answer: 39 percent.

Ignorance is bliss. Until we get hungry.

l Michael Chevy Castranova is Business and Sunday editor of The Gazette; (319) 398-5873; michaelchevy.castranova@thegazette.com

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