Sunday, 10 June 2012
There is a good article in The Economist, June 9th, 2012 about expert advice. The article provides evidence that such advice remains very highly on demand despite clear evidence that it's quality is bad. One of the key reasons mentioned is that people need psychological reassurance: "we believe in experts the same way our anchestors believed in oracles; we want to believe in a controllable world and we have a flawed understanding of the laws of chance." ends the article with a quote from a recent author (Philip Tetlock: Expert political advice). The issue is complicated as I try to argue in my book (also mentioning oracles :-)) but it is clear that psychology has an important role in seeking advice. The article describes an experiment where clearly the advice is bogus (it is about the outcome of coin tosses) yet people pay for it and more so if they find it consistent with their payoffs. This is quite depressing yet very revealing about the market. Still, there is more to advice than just psychology. In a complex world we do have experts of certain important details (tax advisors, etc.). Most advice is really teaching decision makers what the decision is about not trying to forecast the future. Furthermore, there is good evidence that in high uncertainty, while individual advice is likely to be too unrealizable, multiple sources of information combined (the wisdom of crowds) can be hugely effective in arriving at a good conclusion. All these forces, especially the fact that experts' advice needs to be pooled will massively rise the demand for these services. Could this also be an explanation for the thriving of the information industry, be it in finance, health, politics or other matters?