The Toxic Illusion of "Convincing" Sample 2018
FROM 11/17 ISSUE
This old-fashioned newspaper death notice might well be used to describe the long-overdue award of the Nobel Prize in Economics to the great Richard Thaler of the University of Chicago.
To a confirmed behaviorist such as your intrepid editor, Thaler's Nobel bookends that of Daniel Kahneman fifteen years earlier, and in a sense completes the rise to primacy of behavioral economics—of the blinding revelation, as Kahneman and Tversky wrote, that people's “intuitive expectations are governed by a consistent misperception of the world.” That is to say that the human mind, called on to make judgments in uncertain situations, functions not just irrationally but systematically so, as we financial advisors have known from time immemorial.
And, as Dr. Thaler says, “You basically don't change anybody's mind.”
As it happened, the whole issue of attempting to convince anyone of anything was a major focus of my Behavioral Strategies Conference on October 6. Specifically, I asked: what is it that drives us to go on trying to make people believe (or at least accept) the things we're telling them, long past the point where they've demonstrated that they refuse to be helped?
We decided there were three reasons:
(1) Because we want so desperately to see them succeed. In that sense, trying to convince people of something is a manifestation of our noblest impulses. We simply have to recognize that past a certain point—and if we're honest with ourselves we know when that point has been reached—it's a misapplication of our innate goodness.
(2) Because it's the way we were trained. Most of us were basically trained as salespeople—or at least to look at the advisor/prospect interaction through the prism of sales—and a huge part of that skill set involves “overcoming the objection” regardless of how misguided and even irrational it may be.
(3) Because our client acquisition discipline has atrophied to the point where we don't feel that we can easily replace the prospect/client with whom we're wrestling.
Reasoning with someone who refuses to see reason is a tremendous energy drain, and advisors pay a terrible price for it. One has to wonder why we bother.
(a) We know that there are 10,000 people retiring in this country every day, virtually all without a specific plan for growing their income at a premium to the upward slope of their living costs.
(b) We know that the overwhelming plurality of those retirees—and the tens of millions coming along behind them—regard the essential financial challenge of retirement as safeguarding principal, when in fact it is preserving purchasing power over three-decade retirements.
Either one of these incapacities would be potentially fatal to dignity and independence in retirement; both together almost certainly doom the investor to run out of money. We know this. So we just have to train ourselves to stifle—again, past a certain point—the impulse to “convince” someone of ideas (and their conclusions) which should be obvious.
For we are in possession of the supreme secret: that mainstream large-company equities—most commonly measured by the S&P 500—have historically grown their cash dividends at a huge premium to inflation : since 1935, 5.6% vs. 3%. (Indeed, in the current allegedly yield-starved, income-deprived world, the S&P's cash dividend has soared more than 55% since 2012.) Almost everyone we encounter has the disease; we offer the antidote. So what are we trying to prove?
I leave you with Dr. Thaler's dictum. When we start believing and practicing the reality that you basically don't change anybody's mind, we are on our way to a more richly remunerative practice—and a much happier life.
