I finished my economics degree about a month ago. The final year was all about the collision of the perfect econometric models devised by crusty academics and the imperfect world we inhabit.
One (pretty crazy) assumption in most models is that economic agents have access to ‘full information’. What does that mean exactly? That people and businesses instantly and accurately are somehow aware of all the relevant information necessary to make transactions.
Back to reality
I think we can all agree that’s not how things work. Information is costly to acquire: it takes time, it takes money, it takes trust – and a whole lot of luck. As we’ve seen recently, hordes of pundits, analysts and experts were certain on Britain remaining in the EU and a Clinton presidency.
All the information in the world wasn’t enough to get it right. As soon as we relax the assumption of full information, we’re faced with a conundrum: what is the right amount of information to acquire before making a decision? When is it rational to stop paying attention, and just do the damn thing?
In his book Influence, psychologist Robert Cialdini recognises the importance of the heuristics, biases and ‘shortcuts’ we have to use to navigate modern life:
“As the stimuli saturating our lives continue to grow more intricate and variable, we will have to depend increasingly on our shortcuts to handle them all.”
For every one of us, there’s a careful balance we have to be mindful of: inputs and outputs. How long do we wait before we act? When do we go with our gut, and when is it best to hold back?
On the one hand, if we were to wait until we’ve gathered ‘full information’, nothing would ever get done. Nothing would change. But, I don’t know if a world full of people acting on pure impulse would be any better.
We all have to work to find out just how much uncertainty we can stand. Some are naturally bigger gamblers than others. Some are way too conservative. We can all learn to make better decisions.
Things we can work on:
- Perceptiveness. Spend time observing the world. Consider how you and others react to new information. Note your observations down. Over time, you’ll be able to act much faster on considerably less information. Mindfulness meditation is an excellent way to get better at observing.
- Focus. Our attention is scattered, constantly pulled in thirty different directions. If we can work on our ability to concentrate, we’ll put ourselves in a much better position to make the right call.
- Expanding our inputs. How do you learn about anything? Word of mouth, aimlessly Googling, TV news, or maybe the same old newspaper your parents used to read? Reconsider how you soak up information. Books are a favourite source for me. They are usually much better researched and thought through than the reactionary, clickbait articles commonplace today. I’ve learned more about psychology, socio-economic forces and business from Stoicism, ancient military history and Orwell than any modern pundit.
I’ve been on the road in Sweden the last week or so and publishing these posts on my mobile, so I apologise if the formatting is a little off. I’m doing my best.
I’m 60 days into my 100 days of writing challenge. This trip has been a great chance to do some reading, have some excellent conversations, and come up with some new ideas – so keep an eye peeled for the next 40 (which are going to be published from Sweden, the UK, Turkey and Thailand).