I’ve spent my entire career advising a wide range of successful people. Most of them are objectively intelligent — some extremely so — but they aren’t always rational.
Our brains use an incredible amount of energy.
To conserve energy, our brains default to cognitive processes that are fast and intuitive. This natural human tendency is less of an issue when problem-solving in your area of expertise, but it quickly falls outside your circle of competence.
Doctors, on average, are very intelligent.
I’ll pick on doctors for a moment because prior to becoming Chief Investment Officer of a $6B wealth management firm, nearly 85% of the clients I served as a financial advisor were physicians. I’m also the child of a pediatrician and nurse practitioner, so I’ve had plenty of physician interactions during my lifetime.
Over the course of their careers, they develop mental processes for diagnosing and solving their patients’ problems that are fast and low in computational power. As they accumulate more knowledge and experience, they become even more efficient and confident in their problem-solving ability.
But when a physician is presented with a problem outside their area of expertise, such as investing, the mental processing habits they rely upon in their profession aren’t sufficient. Unfortunately, the deficiency compounds when there is also a lack of awareness about what they do or don’t know, which is often the case.
This isn’t only true for doctors — it’s true of everyone from engineers and attorneys to business owners and executives…even you.
Test Your Decision Making Skills
I’ll give you a popular example from academia. Be honest and take a moment to answer it before reading on…
Kelly is looking at Ralph, but Ralph is looking at Susan. Kelly is married, but Susan is not. Is a married person looking at an unmarried person?
- YES
- NO
- CAN’T BE DETERMINED
Ralph’s marital status can’t be determined using the first pair of people. And you can’t determine if Susan is married by looking at the second pair. So most people guess the answer is CAN’T BE DETERMINED.
But to solve the problem, you must consider Ralph’s two possible states. If he is unmarried, the answer is yes because Kelly is looking at him. If he is married, the answer is also yes because he is looking at Susan.
So the answer is YES.
When making or assessing a decision, you must consider all possibilities. That requires a keen awareness of what you do and don’t know.
Two Ways Smart People Get Tripped Up
There are two common times when really smart people get tripped up.
The first is when a portion of their portfolio is underperforming. Almost nobody would disagree that being diversified is a good thing, but they forget in the moment good diversification means holding the losers even when the outlook is bad.
Another common instance is when a person has consumed a well-articulated and compelling forecast about the direction of a given market or economic trend. It’s very rare that they’ve sought out opposing viewpoints or considered how the source of that information does or does not align with their personal situation.
Remember that the next time you’re deciding whether something is good or bad, right or wrong, smart or stupid, optimal or suboptimal.
Consider all the possibilities, especially the possibility that you’re wrong and don’t know everything.
Read This Next: Why Expert Predictions Are Bullsh*t
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