The Unreliable Expert Advisers

Let me start by asking you a question – How many times have you written the word “expert” in your resume. Were you, like me, obsessed about becoming a subject matter expert or a thought leader? Are you an ardent devotee of people who profess expertise and give expert opinion in the media?

1.  Experts Know Better

If the answer to the above questions is yes, then let me ask you another question. If a political scientist and an astrologer are giving predictions of the political scenario in India 20 years from now, whose judgment will you rely on?

Philip Tetlock studied 300 experts over a 20-year period and concluded that experts were just slightly better off than the novices were. The expert group consisted of economists, political scientists, academicians, journalists and Phd. Another study showed that a rat was able to predict the location of food in a cage better than Yale students were.

Started believing in astrologers yet?

2.  Experts Perform Better

The counter argument is Malcolm Gladwell’s study, that to become an expert 10,000 hours of practice is required while continuously enhancing the skills to become an expert. Against this backdrop, one would assume that expertise matters and experts would perform better.

Below is a question, choose one of the options.

 

A study conducted by Eric Schwitzgebel showed that old and rare ethics books in the library were missing at twice the rate of other subject’s old books. That meant ethics philosophers were more likely to steal books than other lecturers were. Their expert knowledge on ethics did not prevent them from doing something completely unethical when it was in their self-interest.

Hence, all the knowledge and teaching of ethics would go waste if it were not incorporated in the behavior and personal value system. Does it not raise the question in your mind as to what is the point of teaching ethics in the organization? Maybe it is worth conducting an organization survey to measure the results.

 3.   Risks Can Be Accurately Predicted

After the financial crises, the bamboozled regulators were grappling to figure out why the idyllic scenario collapsed. All the posturing and ping-pong battles by the self-proclaimed risk management experts could not explain how they were caught napping.

The reason is simple. Risk managers and business managers can only predict risks based on their experience and information. For instance, in David versus Goliath battle, Goliath was well prepared. He was strong; he had a shield and a headgear to protect him. However, he was not aware that a slingshot could kill him. Hence, he did not mitigate that risk.

The risk managers and business managers do not have complete information about the present and the future business environment. Business managers normally take decisions when 70% of the information is available. Complete information is not available and the future is unknown. Hence, the next big disaster is always waiting at the next blind turn.

4.  High Performers Take Lessor Risks

Another assumption is that under-performing managers who are at the risk of missing their targets take higher risks than high-performing managers do. A study conducted by Ping Hu on mutual fund managers showed that both low and high performing managers are likely to take higher risks. The high performing managers do not face any employment risks, are comfortable in their positions; hence, take more risks. The under-performing managers take risks to achieve their goals. Hence, risk taking of managers is a U-shaped curve and highly dependent on the employment risks of the manager.

Therefore, the question arises what is the benefit of all the training given to managers. It allows managers to do proper risk mitigation and enables them to take higher risks.

Closing Thoughts

The above-mentioned studies shatter the fallacies and assumptions of confidently relying of expertise. An expert’s opinion may not be worth the paper it is written. So what is the advantage of having trusted advisers within the company?

The key is not to rely on insiders only. Have a panel of outside experts to give impartial view. Moreover, the experts shouldn’t be attached to their own opinion or view. The higher the levels of constructive confrontation within the organization, the better are the chances of doing effective risk management. Additionally, incorporate risk management processes within the business processes, and integrate them in employee behavior, practices, and reward system.

References:

  1. Philip Tetlock’s book, “Expert Political Judgment: How Good Is It? How Can We Know?”
  2. Do Ethicists Steal More Books? – Eric Schwitzgebel, Department of Philosophy, University of California at Riverside
  3. Fund Flows, Performance, Managerial Career Concerns, and Risk Taking – Ping Hu Risk Analytics, Corporate Finance, Wells Fargo, Charlotte, North Carolina

 

 

 

 

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One comment on “The Unreliable Expert Advisers

  1. Thanks for such an insightful post. I am surely going to take any expert’s advice from now on with a pinch of salt, and if i am going to claim to be an expert on anything in future, I will try to avoid the pitfalls you have mentioned. 🙂

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