Matt Reiner Featured In Advisor Perspectives: The Curse Of Knowledge

The more we know about a subject, the more we assume others know about it. The longer it’s been since we learned something, the harder it is to imagine what it’s like to not know it. You can’t imagine what it’s like to be a baby who doesn’t know how to speak or walk, for example.

There’s also a good chance that you’ve been immersed in your role as a financial advisor for so long that you can’t imagine what it’s like to not know how the stock market works or how to put together an investment portfolio that provides decent returns without exceeding your client’s risk tolerance.

Academics call this phenomenon “the curse of knowledge,” and it may be the reason you’re having a hard time attracting new clients or even retaining new employees.

Brains are biased

The curse of knowledge is a cognitive bias, one of those systematic errors in thinking that occurs because of the human brain’s inherent desire to find the path of least resistance – even if it means taking cognitive shortcuts and using a flawed internal model of reality.

Everyone falls prey to these cognitive biases, whether it’s in the way that everything seems so obvious in hindsight or that we think better about people who are most like us. Cognitive biases can be as detrimental as they are universal, and the curse of knowledge is no different.

Tapping a tune

The most illustrative example of the curse of knowledge came in 1990 at the hands of a woman named Elizabeth Newton. Newton, a graduate student at Stanford, set up a deceptively simple experiment as part of her PhD program. She rounded up subjects and broke them into two groups, “tappers” and “listeners.”

Newton’s instructions were concise. Each tapper was asked to pick from a list of easily recognizable songs – think “Happy Birthday” or “The Star-Spangled Banner” – and was asked to tap out the song’s rhythm on the table in front of them. The listener was instructed to listen and identify the song.

When asked, the tappers guessed that the listeners would be able to recognize the songs about 50% of the time. The results were quite different. After all the 120 songs were tapped and the guesses were tallied, it turned out that the listeners only guessed three correctly – a success rate of just 2.5%.

You’re probably thinking that the experiment’s findings were so obvious as to not need testing in the first place. The tappers could only share a tiny fraction of the information that they possessed, and the information they did provide was incredibly vague and unhelpful on its own. Of course, the listeners got it wrong.

But the real question is this: Why did the tappers predict the listeners would do so well?

You can hear it. We can’t

We see a version of this scenario play out all the time in wealth management. Financial advisors who start their own firms typically have to build everything from the ground up. Often a single founder has to choose, design, and implement every system and process in a way that works for them. They become intimately familiar with all the steps and little details, and it usually works well.

For a while.

As firms grow, advisors typically recognize the need to standardize their processes, so they start to flesh out the necessary infrastructure and standard operating procedures. In theory, having more standardized processes should make it easier for new hires to complete tasks more efficiently, but that’s not always the case.

Think of advisors as the tappers in Newton’s experiment. They know exactly what’s going on, how the processes and systems interact, and what needs to happen to complete each task. The new hires are listeners; they don’t know any of the context, the idiosyncrasies in the systems, all the little details, or anything else. All they have is the small – and usually insufficient – amount of information that their boss gives them.

Less isn’t more

What would the listeners in Newton’s experiment need to improve their accuracy, short of the tappers singing the entire songs? Giving them the sheet music? Humming the melody? Writing down the lyrics?

Getting a new hire to grasp the ins and outs of a complex, homebrewed process is more difficult. There’s often no way to know what information people are going to need to get on the same page. Sometimes it’s best to encourage people to ask questions. Be patient when they ask things that seem obvious to you. Take the time to imagine yourself in their shoes. After all, it wasn’t so long ago that you were struggling to figure out how to master complex tasks using incomplete information.

Read the Advisor Perspectives article here.