Pur Autre Vie

I'm not wrong, I'm just an asshole

Sunday, March 09, 2014

We Are All Generalists

One way of thinking about the direction society has gone is that we are ever-more specialized.  This makes sense, in a way:  as Adam Smith observed, specialization is limited by the extent of the market, and today's market is more extensive than ever before.  (Another way of putting it is that transportation and communication costs have fallen dramatically and so we can specialize to a degree that was never possible before.)  So in our professional lives, we are generally expected to understand only a very narrow area.

But we are all generalists in life:  we are all amateur social psychologists, amateur cooks, amateur writers, amateur political analysts, amateur movie critics, amateur investors, amateur sex workers, and so forth.  (The only exceptions are people who are professional social psychologists, professional cooks, etc.)  Now some of these things are largely recreational, and so the stakes are fairly low—if you are not great at analyzing movies, the worst that is likely to happen is that a few conversations don't go as well as they otherwise might have.  And in other cases, where the overall stakes are fairly high (e.g., presidential elections), a single vote is relatively unlikely to matter.

But then there are those areas of life that matter a lot, and that depend crucially on our mastery of these non-professional skills.  And so it is that we find ourselves desperate to understand things that we can't afford to spend much time thinking about.  We resort to tactics that are of necessity, well, amateurish.  I like to think that my approach to investing is a pretty good one, but any professional investor would almost certainly be taken aback by my ignorance of even basic concepts.  I just don't have the time or inclination to educate myself on these issues.  I am an amateur playing in a professional market.

I think this helps explain the huge volume of bullshit that gets peddled to people.  In particular, it helps explain why people are interested in advice that seems woefully insufficient to the task:  inadequate as it may be, it is probably in an easily digestible format and may provide more usable information than a far "better," more rigorous product.  (Cosmopolitan sex tips seem pretty ridiculous, but most people don't have time to wade through the scholarly literature, and many probably couldn't understand it if they did.  And anyway, how confident are we that the scholarly approach is the best one in this area?)

So the bullshit is understandable.  But that doesn't make it a good thing:  much of it really is pure bullshit, and even when there is helpful information out there, it is not always easy to find it.  Unsurprisingly, people often hire professionals to cover gaps in their expertise.  That can work very well, but it generally trades in one problem for another:  instead of being good at investing, you must be good at hiring someone who is good at investing.  It does you no good to hire someone who is dishonest or bad at his job.  But how are you going to identify good, honest professionals?  Luckily it's easy sometimes:  you may not know the first thing about plumbing, but you know what makes a good plumber, and you can either ask for references or use reviews from the internet to find a good one.  Or you can ask friends to refer a good plumber.  Or you can just rely on the market to weed out plumbers who don't know what they are doing.  Exactly which approach to take may not be obvious, but you're unlikely to go too far wrong with any of them.

But I'm not sure there are comparably effective approaches when it comes to complicated things like investing.  To give another example, the one that motivated this post:  in order to do my taxes properly, I need to understand tax issues that seem to be very arcane (though of course they are probably not arcane to tax professionals).  It is probably a good idea to get outside help, but the tax software I bought resulted in a tiny refund (much smaller than I expected).  When I did my taxes manually (which took several hours), I found a refund about 50 times larger.  Now, who knows, maybe I've done something wrong, but this is the problem:  I don't know enough about taxes to know how reliable the tax preparation software is.  My ignorance about taxes leaves me unequipped to assess the professionals who can help me address my ignorance about taxes.

Partly this is just what it means to be human.  But also, public policy can make a big difference.  Licensing is meant to address these problems, and it may be a good idea in some cases (though I am ready to believe that it is over-used sometimes).  But what is really galling is that taxes don't have to be this hard!  If you were trying to design a system that imposed a much lower burden on tax-filers (not tax-payers:  I am talking about the difficulty of calculating taxes, not the burden of actually paying them), you could do so without much difficulty.  Some people believe the tax preparers have effectively lobbied Congress to make it very difficult to file taxes without professional help.  I don't know if that's true or not, but if so, Congress has outdone itself.

[UPDATE:  The tax software was right and I was wrong!  Score one for specialization/trusting the professionals.  However, it took me about a day's worth of work to figure out that my tax software was right.  Also, I'm pretty sure the software is still filling out the forms wrong, which could affect my taxes next year (though not the amount I owe this year).  So all in all, it's still an unsettling situation.]

4 Comments:

Anonymous Larse vaunt Rear said...

See also.

10:17 PM  
Anonymous Regreta Garbo said...

Ugh, this should work

10:19 PM  
Blogger Grobstein said...

Yeah. It's a prob. The extent to which our social policy requires everyone to be an amateur lawyer (or just get fucked over) is underappreciated, I think.

8:57 AM  
Blogger Grobstein said...

A small grounds for optimism, though, is that the agency costs for hiring specialists will probably go back down, after rising for a long time, thanks to information transparency.

A little fable: for a long time, you might have had one local doctor who served your area. The supervision costs for making sure this doctor did a good job would be widely shared with all your neighbors. It wasn't a perfect system but it probably worked at least a bit.

Then, with urbanization, you suddenly have a huge number of doctors to choose from, and you're no longer embedded in the social network that supervises doctors and tells you which one to go to. You take a shot in the dark and you might wind up with a really bad one (a doctor who is a drunk; a lawyer who simply never files papers in her cases); you have no good way of checking this.

But now and in the future, you're getting the information back. There are reviews of professionals online. These are pretty bad but they will probably get better. You will be able to get performance metrics for anyone you are thinking of hiring -- how does this lawyer tend to do in court? Etc. Statistics are not self-interpreting. But there's room anyway to hope that more public information will make it easier to hire specialists prudently, reducing the costs of specialization and the need to master everything.

We'll see.

9:05 AM  

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