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Martin Scorsese’s new movie, The Wolf of Wall Street, stars Leonardo DiCaprio as a drug-addled con man who made millions by hawking worthless penny stocks to legions of unsuspecting buyers.
As I sat through the 3-hour greed fest, I kept thinking, “Gee, I’d never be that stupid with my money.” Yeah, sure.
I was so smart that I believed the HR person from my former employer, a California tech company, who convinced me I should keep all my retirement earnings in the company stock and not bother diversifying. A year later those earnings dropped 85% in one day.
Later, I was so smart I let my ex-husband invest my remaining money in his latest fool-proof investment strategy — God help me. I’ll spare you the gory details when, all by myself, I went into Forex, the foreign currency exchange that is so popular right now. Oh yeah, I was one smart cookie with money!
If you’re like me (fess up, I know I’m not alone), you’ll want to read the books I discovered as part of my resolution to “Be Smart in 2014.”
Why Smart People Make Big Money Mistakes – And How To Correct Them: Lessons from the New Science of Behavioral Economics (Simon & Schuster, 1999) is a book I should have read — and memorized — years ago. It’s a solid, reader-friendly, amazing look at why so many of us are stupid with money.
Authors Gary Belsky (a money journalist) and Thomas Gilovich (a Cornell psychologist) lay out convincing, and shocking, reasons why we are stupid. The overriding cause of our stupidity, they claim, is over-confidence. Our own, first, of course. We watch a TV money meister for a few weeks and think we’re experts.
But also because, in our “Culture of Confidence,” we are induced to equate confidence with actual expertise. Big mistake. But we do it all the time — career coaches teach us that confidence will win the job; spiritual gurus tell us to “act as if” we already possess what we don’t; we’re trained to trust people who act confidently, be it Presidents leading us to war, team leaders spurring projects that the numbers don’t support, or preachers pushing beliefs they themselves don’t act on.
And women, alas, as liberated as we are, often still rely on male confidence. Smart People does offer impressive behavior modifications we can easily take on — and real-life investment advice — so when you finish the final page you can indeed be much smarter.
I realized (as you might) that money isn’t the only area of life where we make stupid mistakes. Enter The Invisible Gorilla—And Other Ways Our Intuitions Deceive Us by psychologists Christopher Chabris and Daniel Simons (Crown, 2010). This book points out the “inattentive blindness” with which many of us lead our lives—we don’t see what’s in front of us (like the “gorilla” running through a video that half the watchers never saw).
It’s a fact that, instead of taking time to make well-thought out, researched decisions, many of us rely on our instantaneous “gut” reactions or intuition. Can we mention WMD and Iraq? Or the roofer we felt would do a good job despite not having insurance? Or the tenants who seem so perfect we didn’t double check their references?
Intuition definitely has its place in life (let’s not forget Malcolm Gladwell’s 2005 best-selling Blink: The Power of Thinking Without Thinking), but the Gorilla authors insist our decisions must be tempered with more right-brain, time-consuming (read less exciting) rational decisions. It’s a lively, informative book that Asheville readers, who have a definite bias toward intuition thanks to our influential metaphysical communities, will find quite helpful. For more insight into how our minds work go to www.theinvisiblegorilla.com.
In addition to intuition, there are a slew of other quirks that affect the way we make decisions. These are covered, with both scholarly and popular slants, in a fascinating collection of essays by scientists and philosophers: Thinking: The New Science of Decision-Making, Problem-Solving, and Prediction (edited by John Brockman, Harper Perennial, 2013).
These are such new ideas about thinking that you may not have seen them covered in other books yet. It’s mind-boggling, the book points out, how many seemingly insignificant factors go into the way we make decisions. Kind of terrifying too. If you, just a lowly person, aren’t always aware why you make decisions, what can we expect from our world leaders?
Thinking makes us aware that our decisions in life, things we don’t often even “think” about, are more complicated than we dreamed of. Yes, indeed, we need to be more “mindful,” all the time. Check out the exciting website about the work of the editor and the book’s authors at www.edge.org.
Why a Dislike of Numbers Can Mean Disaster
The three books mentioned above define our thinking problems in psychological terms. In my opinion, there’s another pervasive mindset that causes just as many problems – it’s called innumeracy.
Innumeracy is our inability to make sense of the numbers that run our lives. Simply, it’s “mathematical illiteracy.” The phrase became popular in 1988 with the publication of the best-selling book by mathematician John Allan Paulos: Innumeracy: Mathematical Illiteracy and Its Consequences (Holt McDougal).
Anger at all the stupid mistakes people made because they didn’t understand numbers is what inspired Paulos to write his book. We don’t understand simple math, he claims, or percentages, statistics, probability, or anything with lots of numbers.
Here’s the classic example: a TV meteorologist points out there is a 50% chance of rain on Saturday and a 50% chance of rain on Sunday – concluding, thus, that there’s a 100% chance of rain on the weekend.
Innumeracy explains why shocking problems, like stock scams, Medicare fraud, criminal politicians, construction overruns, and battle disasters, are endemic to American culture. Paulos uses math to debunk some of Ashevilleans’ favorite pastimes, such as astrology and tarot cards, which he calls examples of “pseudo-science.”
The role of inumeracy brings up many questions on current national issues. Why are some lawmakers demanding that unemployed workers, in an economy in which it is said that there are a hundred applicants for every job, should lose unemployment compensation, as well as food stamps? Innumeracy can explain their illogical cruelty, but maybe only compassion can actually bring about real-life solutions.