Please click here to view the interview for ING online.
When a monkey throwing a dart can predict the future as well as an ‘expert’, maybe it’s time to have the courage to rely less on the experts and to rather make up our own minds. And according to Noreena Hertz, strategist, commentator and author, we can. We just need to learn how to make smarter decisions. So we asked her how.
Q.You’re known for not being afraid to raise controversial topics. Do you deliberately set out to challenge conventional thinking?
A.“I pick subjects that interest me and that I want to dig into more deeply. In my first book I wrote about markets and companies and concluded that absent regulations pose a threat to government and democracy. In my second I talked about the looming debt crisis at a time when people were not really thinking about debt at all, and definitely not seeing this approaching global crisis that I was seeing. But I don’t set out with a mission to be controversial. The thing is, I’m not afraid to say what I think, even if that differs from the consensus. For me it’s about trying to get to the truth while knowing that truth can be a moving target and can evolve over time.”
“I’m not afraid to come out with what I think, even if that differs from the consensus”
Q.You say you’re not afraid to say what you think, but do you maybe sometimes feel like keeping your head down instead?
A.“No, never. I don’t mind if people I respect have critiques or interpretations of my ideas – I welcome that. I always want to refine my own thinking. But if it’s politicised critiques, or criticism from lazy reviewers who haven’t even read my books, then it’s water off a duck’s back. It really doesn’t bother me at all. I didn’t know that about myself before I started writing these books, but I quickly discovered that I really wasn’t fazed by criticism from parties I didn’t respect, and that I welcome it from parties I do.”
Q.Your first book warned of the ugly side of capitalism, your second of a looming financial crisis. Your last book was very different, exploring how we make decisions and how to do it better. What made you choose that as a subject?
A.“My first two books were political, in a macro sense, but my last book came from a personal place. Eyes Wide Open is also political, but it’s about empowering you to make smart decisions in your own life. The impetus was that I was very sick – I’m 100 percent well now – and had to figure out what to do, which doctor to trust and which expert and treatment to follow. As I went through that process I realised how little we think about how we make big decisions that affect our health, our wealth and our jobs – about the process of decision-making.”
Q.Were you surprised by what you learned about how we make decisions?
A.“Yes! There was a lot that I discovered as I researched this subject that surprised me. I hadn’t realised, for example, the extent to which our emotions and our physical state affect our decisions. It was fascinating to discover research into judges, in Israel, which found that the main determinant in whether or not someone was given parole was not the type of crime or the gender or the ethnicity of the applicant; it was whether the judge had recently eaten. Sleep, it turns out, also drastically affects our decisions. We all instinctively know that if you go a few nights without proper sleep you’ll feel pretty rough. But actually, if you go for a week sleeping for just three or four hours a night, it’s as if you’re making decisions while drunk.”
Q.Hungry judges, lack of sleep – what else should we be aware of when making decisions?
A.“A big one is our emotions. If you’re feeling anxious, that makes you generally more risk adverse when taking decisions. If you’re feeling happy, you are more willing to take risks. That’s why you see stock markets spike after a national team wins a football match. It’s not because anything has happened to the stocks or the companies, it’s just that the market is in a better mood. Colours, too, can affect us. For instance, waitresses are tipped more if they wear a red T-shirt. A referee is more likely to give a player a penalty if they are wearing a black strip. And research has found that even sophisticated investors are more likely to buy a stock if information about it is presented on green paper rather than red paper.”
“This isn’t about never trusting experts; it’s about not blindly trusting them”
Q.Given we’re so easily influenced, what can we do to start making better decisions?
A.“We need to start empowering ourselves to be smarter hunter-gatherers. This isn’t about never trusting experts; it’s about not blindly trusting them. It’s not about not going to a doctor if you’re sick; it’s about going armed with questions and being willing to interrogate and, ideally, having a dialogue. Experts, and I say this as an expert, are fallible and get things wrong. If you think of some of the biggest geo-political events of the last 25 years, whether it’s the fall of the Berlin Wall, the rise of ISIS, the global financial crisis … all these events were not predicted by the bulk of experts. There was a study of 64,000 expert predictions done over a 16-year period, and it turned out that the experts did no better than a monkey randomly throwing a dart at a board.”
Q.Of course, that’s the hard part. Knowing what questions to ask, ascertaining if someone can be trusted or knows what they are talking about…
A.“Yes. The internet and social media have opened up a way for us to get information that we just didn’t have before. But, at the same time, we’ve also got to make sure we know the provenance of our information. We have to make sure we do follow the money and check if there are interests that may be distorting the information we are being given. And we have to remember that people’s direct experiences are only going to be anecdotal and that their experiences may not be directly relevant to us.”
Q.Do you think we’re worse at making decisions than we used to be?
A.“I think we have more challenges while making decisions than we had in the past. The volume of information we are confronted with has increased exponentially – there is just so much more information out there. Working out what to focus on, what to trust takes effort. The other big challenge is the amount of distraction that we are trying to cope with – emails and so on. This constant bombardment of interruption and disruption makes it increasingly hard to think. There’s research that I point to in my book which suggests that every time we are disturbed by an email it takes us 23 minutes to return to the same level of focus we were at before.”
Q.Turning to financial decisions, is there anything unique about making financial decisions that people should consider before they make them?
A.“Pretty much everything I cover in my book is applicable to financial decisions. We are not the rational beings of economic theory who objectively weigh information and make our choices. We are deeply affected by our emotions, by our moods, by the way information is communicated to us, by the quality of information we receive.”
“We are not the objective, rational beings of economic theory who weigh information and make our choices”
Q.So we should try to be emotionless?
A.“It’s not that we can’t be emotional. That’s not the message to take away. It’s about noting our emotions; about being able to say to yourself, ‘Okay, now I’m feeling anxious’, or, ‘I’m in a really good mood’, because just that act seems to regulate our decision-making. One piece of research found that Buddhist monks made the best financial decisions. That’s probably because they are very, very good at noting their emotional state. It’s just second nature to them.”
Q.Is there an ideal state to be in?
A.“Mindfulness; being aware of your state of mind. If you’re feeling really down and depressed, that probably isn’t the time to make a big financial decision, but ditto if you are feeling incredibly exuberant, because you are much more prone then to be reckless. So you need to note your emotional state.”
Q.Are there other things we can do to help us make smarter financial decisions?
A.“One of the key things is to bring a questioning mind to your relationship with your financial advisor. You want to be able to say to your financial adviser, ‘Oh, I was reading about this, what do you think about it?’ or ‘I’m not sure this is right for me’, or, ‘I heard about this’. Ideally, you want the relationship to be reciprocal as well, so that your adviser is also challenging you and questioning some of the assumptions you may have. You want an advisor you can have a dialogue with. You don’t want advisors who are 100 percent confident about what they are saying and sees things as very black and white, because, with matters of finance, as with matters of health, there are a lot of grey areas. The right advisor will improve your life, but part of the responsibility is on you to ask the right questions.”
Q.You talk in your book about the need to find a diverse range of people to advise us. Any tips on how to do that?
A.“One way is to actively seek out diverse perspectives amongst your network. This can be as simple as asking someone of a different gender or age what they think. There’s a lot of academic research on the power of difference and the value of different views that people of different ages, gender and ethnicity bring to a situation. So one thing is to look for people who don’t look like you and solicit their views. In a work environment, it’s about looking for the person who doesn’t just nod their head the whole time in agreement, and actively encouraging them to voice their views. Eric Schmidt, the chairman of Google, says that in meetings he will actively look for that person and get them to say what is on their mind. It’s something that is really important to do, especially if you are managing a group.”
Q.Are there things the financial sector could be doing to help consumers make smarter decisions?
A.“Clearly, there is a role that banks and financial institutions can play in helping empower consumers. More transparency would be a start. If you are a financial institution and you genuinely want to help your consumers make better decisions, you also have to accept that by empowering them there is a chance they won’t end up with you.”
Q.What about relying more on data to make our decisions?
A.“There are some really exciting advancements in data and Big Data. I’ve been doing some research in this area and, in terms of predictive capabilities, even looking at Google Trends can give you a heads up on a market before official data arrives. But as ever you need your eyes wide open and your brain switched on. For example, the UK government tracks Google search term data on some keywords. In October 2011, there was a massive overnight spike in searches for jobs. There was panic as they wondered what they had missed, and it took some time to realise that it was because Steve Jobs had died. So, there are amazing opportunities with data, but, again, we need to think about it and be careful about what we are using.”
Q.And before you can think carefully about data, you first need to be able to interpret it and understand it. However, a lot of people are mathematically illiterate…
A.“That’s something where I think education can really help. I have a chapter in my book about maths anxiety and it’s the one that has got the biggest reaction. It’s all about how to read graphs and charts, and all the things that can be done to manipulate the way numbers are presented. A lot of people, even very successful ones, haven’t done maths since high school, and they really found it very informative.”
Q.Final question. What would you do if you were a banker for a day?
A.“Wow. One wish. I would ask for all the payroll data of all the employees in my bank and I would make sure my female staff were being paid the same as my male staff.”