Learn about the Dunning-Kruger impact, which is often seen in finance as it is in almost every area, and what it can mean for your investments.
In 1995, a man named McArthur Wheeler robbed two banks in Pittsburgh, USA, for several days.
Man handled the clocks after hours. On his face there was no ski mask often used by robbers or anything else he could use to cover his face. The only thing McArthur Wheeler used to hide himself was the lemon juice.
You’re not reading it wrong: The man had only lemon juice put in his face to hide himself!
Wheeler was arrested and interrogated. At first he denied all the charges. Wheeler was surprised when the police tracked the security camera records of the banks. The camera records showed that he was robbing banks.
Wheeler was surprised at why his plan didn’t work. He told the cops that lemon juice should have made his face invisible on security cameras.
At first, the police were surprised and thought that Wheeler was under the influence or under the influence of drugs. But that was not the case. Wheeler was wrong about some of the things he thought he knew very well.
When she was very young she opened her lemon juice and became visible when she was a child, and then, with the knowledge in her mind, Wheeler concluded that her face would be invisible in security cameras.
And it turned out that Wheeler was trying. She released lemon juice on her face and took a snapshot of her using the Polaroid camera. His face was not visible in this photograph. The police stopped the possibility that the camera or film was defective or that the direction of the lens was not set correctly.
Wheeler went to jail. Soon after, the story spread around the world.
Today, such an event can be mocked on Facebook and Twitter can be among the top titles. But in the mid-1990s, social media was still entering our new lives. This story became the subject of television programs that included the world’s stupidest criminals and entered the 1996 World Congress.
The story of Wheeler caught the attention of David Dunning, professor of psychology at Cornell.
Dunning saw something common among all people in Wheeler: people with the least knowledge and skills about a particular subject tend to show high self-confidence as if they knew everything about it, and how little knowledge they have. prevents them from understanding.
This is known as the Dunning-Kruger effect or Dunning-Kruger syndrome.
In short, the Dunning-Kruger effect is a cognitive bias in which people often exaggerate their knowledge and abilities. In other words, people think they are better than they are in something.
Of course, this was not a completely original idea. Most people call this tendency arrogance, immorality, or selfishness. Throughout history, they can extend from Napoleon to Narcissus, which is found in both the real and mythical accounts.
For example, the British biologist and historian of history, Charles Darwin, said more than a century ago that in ignorance often caused self-confidence rather than having knowledge example.
For example, the situation of un ignorant courage ”about exaggerating our knowledge and skills can be found everywhere.
It is possible to observe the Dunning-Kruger effect clearly in the field of finance. In 2006, researcher James Montier concluded that 74% of the 300 professional fund managers he interviewed rated their business performance as 74 above average 2006.
The remaining 26% of professional fund managers who are subject to Montier’s research are mas average etic; 0% rated business performances as “below average%.
Of course, this is not the case. That’s pretty impossible.
Whether it’s bank robbers or professional fund managers who are highly confident in what they are doing, the Dunning-Kruger effect can reach everyone.
Fortunately, there is a defensive weapon where it is possible to use against the Dunning-Kruger influence: awareness.
The Dunning-Kruger effect can ruin your investments. If left unchecked, this effect may result in disaster for your portfolio.
Be therefore aware and always question your own investment ideas. This effect does not assume that you are stupid or always make bad investment decisions. Instead, it assumes that you don’t know everything. We have to admit, that’s pretty fair.
You can see arrogance, prejudices and personal skepticism as part of your always devoted work. Realizing your lack of knowledge can help you get good results in the long run.