Information deluge and poor decision making

And this will only get worse due to the internet.

Having spent 10 years on Wall Street, I can say with authority that most people are far better off letting a pension manager handle their money. All but the most savvy either do too little or too much. Plus, when value declines, you can get pissed at the manager, perhaps even sue them for violating fiduciary duty if they are terrible, rather than second-guessing oneself. There is a small fraction of people who will do better with their own trading, and another small fraction who will insist on DIY investing but do worse anyway.

 

I didn't know whether I should reply to this thread or not, so I will... or not. j/k

I totally get it though... I have still not researched investment firms/options for our kids' money and it just sits in a savings account making next to nothing.

 

I think the argument presented in the OP misses the forest for the trees which is this: People are ill-prepared or unable to ignore poor quality or wrong information. They are unable (or unwilling) to identify and accept expert opinion, and instead follow the leader that says what they want to hear.

It is getting worse for many, because the internet and TV allows almost unlimited FUD and disinformation. I personally do not feel overloaded at all, I feel empowered. But then I ignore Faux news (and most mainstream media as well,) so I keep the noise down.

 

+10

I'd say at least 90% of the trouble we get into in the world is directly attributable to this quirk of our nature. Knowledge by itself isn't the antidote, either, although it's so far been more effective than anything else.

 

Funny timing, I just came across this link:
Fairleigh Dickinson PublicMind Poll Shows Fox News Viewers Less Informed on Major News Stories

(Faux News dumbs down its readership.)

No Sh1t, Sherlock

 

I saw that, too. The FOX followers on this board will of course claim the poll flawed, incorrect, only one apple in the barrel etc. but it'll be an uphill struggle for them because they're less informed than the people they're attempting to persuade!

 

The trick is finding a good manager, the large majority of them don't do as good as the overall market does. If a person does get a manager they should definitely hire one who works for a fee and will have no financial benefit from churning.

No disagreement with that.

 

I agree that too many choices makes it harder to make a decision. For investing, I compromise: I use a couple of different advisors, but I vett their recommendations. Normally I take their recommendations, but I ask questions, and occasionally we decide together that the recommendation does not suit my needs. They know a lot more than I do about the market, and they have access to resources that I don't. But they, too, can make bad choices sometimes, since nobody can predict the future. I do not do any short-term trading. I invest for the long term.

I've known people who do short term trading, and I've known people who gamble in casinos. I've never met anyone who admitted to losing money at either activity. It is my considered opinion that 95% of these people are lying. Maybe all.

 

Generally speaking, people are ill-prepared to evaluate choices, or filter information to only include what they actually care about - and many people even have trouble identifying what they truly care about in a product. If you're buying a new toaster, do you care if it has a sexy woman's voice that tells you when your toast is done, or do you want it to avoid burning your bread and last a long time? Most people will go for the sexy voice, even if it produces nothing but inedible charcoal.

What we really need is an educational system that teaches students how to process and filter information - not one that simple throws information at them and expects it to be memorized. I do a lot of that with the high school robotics team I volunteer with - When we're selecting parts for the robot, I make sure we bring up spec sheets. Often, those contain a ton of information that we don't really care about, and a few items that are really relevant. We spend a lot of time talking about exactly what we need from the part, what each possible part can supply, and ensure that the students know how to make an informed decision before proceeding.

Personally, I've never had much problem making an informed decision. In fact, for major purchases, I take the time to lay out my requirements for the purchase and do plenty of research before making a decision. If I need a new stereo, I don't just walk into Best Buy and get one... I set a personal price point, decide on the required features, find a handful of possibilities, and do research on items like expected lifetime, repair costs, etc. From all of that, I probably end up with one that was released a year or two ago with a proven track record that contains all the features I need at a significantly cheaper price point than a brand new model. I seek out expert opinions from relevant sites that do tear downs and professional reviews of products.

But all of that may be a simple result of my education as a software engineer, and my need to filter (or tell the computer how to filter, actually) millions of data points every day for my job.

Oh, and lets just say I don't bother with this sort of research when going for the cheap stuff. A new pair of shoes that costs $50 and will last a year or so? Who care's what the absolute best is? I can find a pair that's good enough by just picking through them at the store.

 

Too much information, or too many choices? I like too much information; I dislike too many choices. Still unanswered is why more choices leads to poorer choices. Maybe that's the result of a flaw in the design of the study.

A potential benefit of a quick decision is more immediate feedback. If that feedback is not used then there's little point in a quick decision.

 

Avoiding burning your bread and lasting a long time sounds sexual too.

The politicians and 1% ers don't want a population that can think for itself. Your goal is definitely an uphill battle when the powers that be are in opposition to your goals.

That decision is the result of good analysis.:thumb: The first analysis that should be made when analyzing something is how much analysis should be done.

 

The problem comes from the fact that we, to a certain extent, know data is flawed in some way. Most of us don't know exactly how, or where, but we know that information has a message or agenda behind it's delivery - and since we don't have tools to analyze and quantify things like this - we 'guess', which can leave out important factors outside the realms of our knowledge or experience.

 

I would be curious what sort of "people" they studied. As an engineer, every piece of knowledge could be vital. I don't suffer from decision-retardation, I just think.

If you have a thinking-oriented brain, you can think. If you flip burgers and find it enjoyable, then perhaps you cannot find the lowest cost solution to buying landing strips at LAX.

 

Probably because of the multi-dimensional nature of decisions in the real world. If you are deciding based on one criterion only, say you want the heaviest car, you can list them in order and the decision is easy. But with multiple criteria, each weighted differently, the decision becomes exponentially more difficult as the number of choices increases.

Everyone can think. And everyone has limits to their analytical powers. Even leaving aside emotional issues such as stress related to the fear of making a wrong decision, there comes a point (different for different individuals) where the problem becomes too difficult for your ability.

I think that's the whole point of the study: What happens when that point is passed? The study is showing us physiological effects in the brain when the problem becomes too complex.

I think of what happens to me when I play chess against a much stronger player, and I'm faced with a combination too difficult for me to analyse: At some point my brain seems to shut off, and I'll make a bad move. No matter how good a thinker you are, no matter how good a chess player you are, there will be problems/combinations, that are beyond your analytical ability.

Remember, in the landing slot problem, it's not just a matter of picking the "best" slots: It's a question of finding the best value of a large number of slots for the money, as you are bidding against other buyers for overlapping and conflicting groups of varying numbers of slots. And each slot that you buy or fail to buy changes the value to you of the slots around it. Maybe you need a certain number of slots in a given half-hour period to meet your traffic demands; the more you acquire, the less desperate you are for each additional one, but the more your competitors acquire, the more desperate you are to get some; so the value to you of a given slot is constantly changing; and meanwhile the bidding is not just on individual slots, but on odd mixed groups of slots.

I think it's glib to say "I can think, therefore I can solve this (or any) problem."

 

Seem to me that a study that overloads people has come to the conclusion that a person can be overloaded.

I also faced the problem of a Gazillion 401k options and for a time I had no clue what to choose. But that was transient. It takes some time to educate yourself on what all that gibberish means.....and often it is meant to be gibberish. A prospectus is written to satisfy the seller, not inform the buyer. So the solution is patience, study, and research. Overload solved. 95% of the 401k options are eliminated as someone's version of stock market stew. Same with buying "landing slots". Replace overload with a long term education plan.

I'm sure the first humans to leave Africa were suffering from decision overload. Obviously, I'm typing this since someone figured out a good enough decision.

 

The term we used to use was "analysis paralysis".

 

No it isn't the exact situation, but it gets the point across. My analysis is thorough and no analysis had to be done to determine that stupid people can be outwitted.

There is nothing wrong with elitism. Some people are better than others. If you think everyone is equal in everything you are mistaken. Intelligence is an area where some people have it, some don't. Within that there are obvious distributions.

Yes there comes a point where you become cognitively overloaded. It is different for everyone where that points happens. However if you take the important information and catalogue it internally you don't need everything upfront. To make a computer analogy, eventually your RAM will fill up, so you page it to slower more abundant memory. When it comes time to make the final decision, you may have to scan many places of memory to get all the variables to make your decision. If you employ heuristics then you don't actually have to compute every possibility, but you can narrow in on the best probable answer. That is exactly how these types of problems are normally solved.

If you can't memorize things that quickly, then again that is a personal problem. Those with eidetic* memories have no trouble with that. A highly functioning being with an eidetic memory and enough skill to process the basics of a question, can solve any question every time.

*used in the common definition, not the medical definition