The 11th President of the USA

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Did you know, that between the years 1845 and 1849, James Knox Polk served as the 11th President of the United States? It’s true, and has was quite the President by all accounts. However, as it turns out, ask over 200 people this question at a conference, and only three people have even heard of him… or so they think! Let me explain what I mean and why this is rather relevant.

Recently I had the pleasure – and it was indeed a pleasure – of touring the UK, presenting in 6 cities at Illuminate Live, Financial Planner events organised and run by Nucleus.

Over the course of an hour, I talked about the evolution of human behaviour, and explored five pervasive behavioural biases that impact the way in which people make important decisions. Sharing some of Be-IQ’s latest cutting-edge research, I also attempted (for the first time ever I believe) to reveal behavioural biases live in the room. This was genuine fun and, excuse the pun, illuminating.

In doing so we explored not only US Presidential history, but the Oxford English Dictionary, medical conditions, buying a new suit, elephants sitting in a tree, and went trough the famous Wason selection task as part of our discussions around the mother of all behavioural biases, confirmation bias.

Now, without giving too much away on here (since I plan to do it again at other conferences later in the year) one area that proved the most insightful, was the discussion around confidence. 

IT’S ABOUT THE KNOWN KNOWS

There are many ways we can reveal the level of confidence in a person, but I wanted to explore, live in the conference room, the more specific example of confidence in relation to knowledge. The methodology was simple and quick. Present a true/false statement, and then once answered, ask every person in the room to rate their confidence in their answer.

As it turns out, of the c200 attendees, every person guessed the answer. Not one person answered the question with an absolute conviction that they knew the answer. When asked the supplementary question about their confidence level, only 5% of people responded with “I’m not at all confident”.

This, of course, is the correct answer if you are guessing. However, we had a whole range of answers across the confidence scale… with, thankfully, no-one saying they were “completely confident” in their guess!

What’s interesting is that if I had asked the room to guess how many jelly beans were inside a massive glass jar, everyone would have looked at the jar and proffered their best guess. However, if I then probed their confidence level, people would have come across as a little bit bonkers if they suggested that they had any degree of confidence in their answer. Yet – this isn’t how we function when it comes to general knowledge… especially when we are in the presence of a group of equally intelligent people. This overconfidence is one of the reasons pub quizzes work so well, and why they cause so many arguments!

TWO TYPES OF KNOWLEDGE

You see, there are two kinds of knowledge. Subjective knowledge (what we think we know), and objective knowledge (what we really do know). The problem facing advisers in this regard, is when you ask a client a subjective question, you’ll get an answer that is most likely peppered, to some level, with either under-confidence or overconfidence.

Asking a client “Do you know what the function of the stock market is?” (subjective) will deliver a different outcome, and insight, to “Tell me what the function of the stock market is” (objective).

If you did ask a client the first question “Do you know what the function of the stock market is?”, and they reply with a “Yes!”, then the supplementary question you should ask yourself is “Can I trust their subjective response?”

As I said in every room I presented in, I’m not at all suggesting they people are not telling the truth on purpose. But what I am suggesting, is that if overconfidence is underpinning their subjective response, then strictly speaking, they aren’t being truthful… more untruthful to themselves, than to you!

Of course under-confidence also plays its part in this. Their response to the subjective question may have been “No!”, but actually, hidden deep-down inside, they really do know the answer. However, they feel that they don’t have the correct answer, and under-confidence creeps in.

BUT WHO’S WHO?

If you are a Financial Planner, or engage with people and their finances, the questions you should ideally know the answers to are: which of my clients are under-confident, which are overconfident, and where do the rest of my clients sit in between those two extremes?

Confidence

The James Polk question was my attempt to play a light-hearted, fun game live in the room to reveal a behavioural bias. It was by no means scientifically valid. The methodology was far from perfect. Yet it still revealed the expected results.

However, if we expect Financial Planners to test for confidence with their clients, then there needs to be an equally enjoyable process people can go through, but one that has solid academic methodology and is constructed to meet the scientific requirements of validity and reliability.

Knowing this one behavioural element impacts the way you present information to people, the language you use in working through their financial plans, the amount of time you dedicate to delivering your service. Knowing just this one behavioural element can change your entire relationship with your clients. With some, it may make little difference, but with others, it could be the difference between financial plan success and financial plan failure.

One of the questions I was asked most at the Illuminate events was “As Planners, how can we measure behaviours ourselves?”. The answer to this is behavioural coaching. This is a service that Be-IQ revealed last week with the introduction of a new category of service that will demonstrate the value of ongoing customer relationships and advice in a way not seen before.

This new service will combine award-wining consumer engagement with planning and advice, along with a Financial Planner’s needs around truly knowing a clients’ behaviours and the potential to impact their financial wellbeing.

More on this in my next blog.

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