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.
You’re known for not being afraid to raise controversial topics. Do you deliberately set out to challenge conventional thinking?
“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”
You say you’re not afraid to say what you think, but do you maybe sometimes feel like keeping your head down instead?
“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.”
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?
“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.”
Were you surprised by what you learned about how we make decisions?
“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.”
Hungry judges, lack of sleep – what else should we be aware of when making decisions?
“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”
Given we’re so easily influenced, what can we do to start making better decisions?
“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.”
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…
“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.”
Do you think we’re worse at making decisions than we used to be?
“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.”
Turning to financial decisions, is there anything unique about making financial decisions that people should consider before they make them?
“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.”