Disclosing Bias Doesn’t Cancel Its Effects

Trust but verify, especially when we’re paying someone for their advice. Because even when the professional discloses his bias — a banker who stands to gain from a merger, say — we still don’t discount it enough when coming to our conclusion.

We ordinary folks have to gauge, sometimes on the spot, whether a specialist’s opinion is worth the price, and whether that person stands to gain because you are not sure what they are talking about.

For example, a fair amount has been written about whether the perks that doctors receive from pharmaceutical companies bias the doctors. Other research suggests that consumers would do well to think twice before assuming a professional’s advice is worth the price.

In a study published in 2005 in The Journal of Legal Studies, 147 subjects were asked to assume either the role of an adviser or of someone depending on advice. The researchers set up two experimental conditions. In both, there was a conflict of interest: the advisers stood to gain financially if the clients followed their biased advice.

In the first condition, in which the advisers did not disclose their conflict of interest, they knowingly gave misleading advice. In the experiment, the clients lost money because they followed the advisers’ suggestions.

In the second condition, the advisers disclosed their conflict of interest: they conceded they would benefit if the clients heeded the advice. But coming clean didn’t have the expected result. Although the clients, now aware that their advisers were biased, were more skeptical about taking the advice, ”they didn’t discount it enough,” said George Loewenstein, a professor of economics and psychology at Carnegie Mellon University and a co-author of the study, which was conducted at the university.

And the advisers, still determined to make more money, exaggerated their claims. ”The advisers ended up making even more money than in the first condition, which is exactly the opposite of what you would hope for or expect,” he said.

From this Times$elect article, via my homeboy Ramit.

Thinking like an Entrepreneur in College

I wrote a brief commentary for Marketplace, a radio program that airs on NPR usually after "All Things Considered". The topic was "Thinking like an entrepreneur in college," since it’s back-to-school time. It aired a couple days ago.

Although I’ve done a couple dozen radio interviews / live conversations, I’ve never written anything in essay format. Much different than writing for print — I had a good time working with the producer to both write and record the piece in the studio (they mix and match your best lines).

I’m starting to like this "get paid to write" thing….

Text transcript below. Will I really be able to be entrepreneurial in college? Time will tell!

Most people, when they hear the word entrepreneur, think of someone who starts their own business.

And while that’s an accurate definition — I started my first company when I was 14 — it’s not the whole story.

Anyone can think like entrepreneur…even about going to college.

Acting like an entrepreneur means exposing yourself to randomness and being relentlessly optimistic.

But no matter how hard you try, you have to be in the right environment. That affects what kind of rebel you might become.

My parents instilled quiet confidence but they never said if you set your mind to it you can change the world.  They were sober.

So was I.  Local governments never go out of business and they have constant customer service needs. So, I created a software company filling those needs.

College has its own atmosphere and influences.

Some schools turn students into life-long learners and problem solvers. Others teach them how to be professional task masters.

But in the end it’s up to me to be as entrepreneurial as possible about my college experience.

I need to cold call professors I find interesting.

I need to do that old business thing known as networking, but in the sheltered world of higher ed, that means genuine friendship-building.

I need to remember that the benefit of going from an A- to A+ is probably not worth the all-nighters it would require. Just like companies need to ship, ship, ship and not tinker till perfection.

In other words, settle for good enough, not perfect.

Sure, like any good entrepreneur, I need to take risks, but this time of the intellectual sort. The college environment might be the one place where changing your mind is celebrated, not dismissed as flip-flopping.

Yes, famous entrepreneurs like Bill Gates and Steve Jobs dropped out of college. But to pass up such a defining experience without trying it first?

That’s not what a true entrepreneur would do.

What Was Your Most Frequent Mistake?

To further the riff on advice giving and receiving: Suppose you had the opportunity to ask a really successful person one question and you had to choose between:

  • What was you biggest mistake?
  • What was your most frequent mistake?

Most people ask for the “biggest”. Most people, in my experience, tend to ask for extreme examples to try to understand someone. “What was your most embarrassing moment?” is another common one.

Me? I’d prefer to learn what mistake a successful person committed over and over again before mastering it, rather than their one large lapse of judgment. Though I see the other perspective: if somebody successful committed the same mistake over and over, maybe it isn’t a very important mistake.

In any case, how you ask questions makes a difference. How many times do you think Warren Buffett has been asked the eminently stupid question, “What is the single most important characteristic / habit / lesson / whatever to being successful?” If I could ask Buffett just one question, I would ask about his most frequent mistake, or perhaps what he regrets not doing when he was at my stage in life.

(hat tip, once again, to Eliezer, for sparking this)

How Not to Lose vs. How to Win

More military battles are lost by stupidity than won by genius.

Too many business gurus focus on the secret techniques for winning instead of showing the proven path to failure. Instead of promising clever tactics and lessons — which, if they were actually effective would be employed by everyone and therefore no longer be clever — books and gurus would be better if they focused on all the tactics, strategies, and decisions that went terribly wrong. I talked about some of my failures and poor decisions in my own book, but could have done more.

This idea is similar to a post I did on an Arnold Kling quote which said the most important knowledge in business is the stuff that ought to work, but doesn’t.

(Hat tip to Eliezer Yudkowsky for fueling pretty much this whole post including the first sentence.)

When You Can’t Understand Someone

Who’s speaking a foreign language, and it’s an inconsequential interaction (like at a street-corner) your first task is to determine whether they uttered a statement or question. If a statement, you can just smile and nod. If a question, you have to come up with a reply!