“Half the money I spend on advertising is wasted; the trouble is I don’t know which half.” This famous quotation from John Wanamaker, a US department store merchant (1838-1922), should be familiar to all students of marketing...
“Half the money I spend on advertising is wasted; the trouble is I don’t know which half.” This famous quotation from John Wanamaker, a US department store merchant (1838-1922), should be familiar to all students of marketing.
Though thought-provoking, however, it is no more inspirational than simply suggesting that we are usually far more ignorant than we think we are in making decisions in life – not just over matters related to advertising spending.
In the process of decision-making, the trouble with ignorance is not just not knowing enough about what are the factors at play or at stake, as a person at any particular place and time indeed can only know so such, i.e., insignificantly little, in the infinite universe over an unlimited time span. What is even more troublesome for anyone is to wrongly believe that he knows about something which he actually knows nothing, and the consequence can be unimaginably detrimental. But the scary truth is that people may not have the benefit of hindsight about what has gone wrong until it is too late.
Only humility can turn ignorance into a virtue
Indeed, ignorance usually runs deep behind investment decisions, even for professional or institutional investors. Without naming real names, scandals over traders secretly betting away their corporate monies and, as a common result, publicly burning huge fortunes while being humiliated and despised, are valid testaments to the curse of ignorance in the financial world.
Advertisement
No matter how sophisticated and vigorous people think their analytical models are no system can accurately predict the outcome from sheer randomness, which is the very nature of any markets of financial exchange. Sooner or later, however improbable it may be, a black swan (borrowing the title of Nassim Nicholas Taleb’s best-seller) is bound to emerge. History is full of tragedies involving people betting on the wrong side of a gamble, or there would not be any financial crisis in the making.
The sensible way round ignorance, therefore, is not trying to aim for total foolproof protection — as there will never be any such thing — but one which leverages on vigilance, risk assessment, hedging and governance. Nowadays, though serving no more purpose than simply stating the obvious, it is common for investment bankers to remind their clients (indeed, even for investment commentators to remind the general public) that the past records of any stock are no guarantee as to its future performance and that any market index can go up or down randomly.
Advertisement
The curse of ignorance is no less, indeed, even more threatening in the corporate world than in financial markets. While investors may sometimes be fortunately guided by the wisdom of crowds in the latter, there may not always be enough channels for voicing alternative views in the decision-making process in counter-balancing the risk of ignorance in the former. The risk runs the highest in a corporate environment where subordinates are all too readily subservient to the orders — even whims — of their superiors for the sake of their career interests, and therefore, are reluctant to hold, let alone air any contrarian opinions.
Again, what organisations need is not only a platform for ample collaborative and consultative dialogues among the decision-stakeholders, but a vigorous enough governance system to ensure checks and balances against any mad behaviour by any narcissistic strongman.
The wisdom of crowds, however, may not always readily reveal an outcome which is as close to the truth as is statistically inferred (as James Surowiecki suggested in his famous book), particularly in situations where people in the crowd are not all thinking individually but rather behaving like sheep.
Advertisement
Socrates, the great philosopher born in 469BC and condemned to death in 399BC by the people of Athens for his unorthodox philosophy, on prosecution, chose death over blindly succumbing to popular conventions. He was the quintessential pioneer of enlightenment concerning the trap of ignorance and the virtue of critical thinking.
Socrates strongly believed that so-called common sense might warrant more profound inquiry. People may be wrong, even when they are in important positions or when they are espousing beliefs held for centuries by the vast majority, for the simple fact that they have not examined their beliefs logically.
“While each man thought he knew a great deal and was wise, in fact they knew very little and were not wise at all,” he concluded.
Advertisement
Paradoxically, however, ignorance also has its virtue. One year ago, who would have predicted that oil prices would be depreciating by half? Those few airlines, who out of either shrewdness or the ignorance of their management, chose not to exercise any hedging arrangements at prices higher than today’s real price are now enjoying the unexpected gains like godsend windfalls.
But people cannot possibly rely on luck to be rescued from the curse of ignorance. If there is one safeguard against it, it can only be humility. Because only when a person truly accepts his ignorance and, therefore, his vulnerability to pitfalls of the unknown, will he become genuinely open-minded in learning beyond what he already knows; that is to say, only humility can turn ignorance into a virtue.
