The Dunning-Kruger Effect, How to Create Wealth, & More
Today at a Glance
- Question: Writing your obituary.
- Quote: Pretend and become.
- Framework: The Dunning-Kruger Effect.
- Tweet: How to make wealth.
- Article: The Tyranny of Convenience.
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Question to set your priorities:
If you could write your own obituary, what would it say?
During the Berkshire Hathaway Annual Meeting last weekend, Warren Buffett made a comment about how to live life according to your core values:
"You should write your obituary and then try to figure out how to live up to it."
This is a profound idea, similar to my Deathbed Regret List exercise from a few weeks ago.
There are really two questions to ask:
- What would you want your obituary to say?
- Are your present day actions contributing to that future?
The first question highlights your core values—how you will measure your lift in the end.
The second question highlights whether these values are observable (you are living in accordance with them) or aspirational (you hope to live in accordance with them).
If you segment your values into observable and aspirational, you can start making changes to your life to shift those from the latter into the former.
Lesson: Begin with the end in mind.
Quote to choose your character:
"We are what we pretend to be, so we must be careful what we pretend to be." - Kurt Vonnegut
You have the power to shape your future through your acting in the present.
Choose your character wisely.
Framework to avoid ignorance:
The Dunning-Kruger Effect
As we exit the free-money era when the markets minted many new self-proclaimed geniuses, the Dunning-Kruger Effect is more relevant than ever.
The Dunning-Kruger Effect is a cognitive bias in which people with low ability at a given task are prone to overestimate their ability at that task.
Put simply, humans are notoriously incapable of objective evaluation of their competency levels.
The cognitive bias was first identified by psychologists David Dunning and Justin Kruger in a 1999 study. Their paper, entitled Unskilled and Unaware of It, summarized, "People tend to hold overly favorable views of their abilities in many social and intellectual domains."
The two men had studied the bizarre case of McArthur Wheeler, a bank robber who was swiftly caught after robbing two banks in broad daylight.
He hadn't worn a mask. Instead, he had rubbed lemon juice on his face, believing it would make him invisible to cameras.
Wheeler was aware that lemon juice was used as invisible ink, so (incorrectly) inferred that it could be used to make himself invisible to security cameras. Even after he was caught, he was legitimately incredulous that his plan with the lemon juice hadn't worked.
Dunning and Kruger studied whether the least skilled are the most overconfident.
Their finding: The worst performers consistently overestimated their abilities relative to others. They were in "unconscious incompetence" stage of the Hierarchy of Competence (discussed in my piece on the Paradox of Effort).
But while we can all rail against the politicians, bosses, or public figures who seem to epitomize the Dunning-Kruger Effect, it is important to recognize that, as humans, we're all prone to this cognitive bias!
A few strategies to avoid (or temper) it:
- Identify your Circle of Competence and ruthlessly protect its boundaries. Know what you know (and what you don't!).
- Get comfortable with "I don't know." Most people have an inherent discomfort with saying it, but I would argue it's one of the most important phrases in the English language.
- Make a habit out of questioning your assumptions. It's easy to continue to believe what you have historically believed. It's much more difficult to question those beliefs, but it's the only way to avoid catastrophe and grow.
The Dunning-Kruger Effect is dangerous:
"It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so." - Mark Twain
So the next time you begin marveling at your skill at a task, remember what you just learned and the strategies for avoiding it…
Tweet to create new wealth:
This is a really eye-opening essay that I read many years ago. The tweet photo captures the essence of it well.
Article on embracing some friction:
"The impediment to action advances action. What stands in the way becomes the way." - Marcus Aurelius
Ancient culture was marked by an embrace of—and respect for—friction. Modern culture is marked by an obsession with avoiding friction.
Our society has come to view friction as something toxic—in need of complete eradication. But when we press the metaphorical "Easy Button" over and over again, something bad slowly starts to happen...
