Helping Advisors Blog

Investing is a complicated subject – with financial experts voicing countless opinions and recommendations. Sometimes the experts are understandable, but more often than not, they leave investors scratching their heads with all the theory and jargon they use. If it can be said in a simpler way, then why do experts infuse their commentary with complex rhetoric? Perhaps because it makes them feel smarter, or perhaps they don’t know they’re doing it – maybe they suffer from the “Curse of Knowledge.”

The Curse of Knowledge is when you lose the ability to see past your own expertise – when you forget what it’s like for those who don’t know all the theory and jargon.

In the book Made to Stick: Why Some Ideas Survive and Others Die by Chip and Dan Heath, the authors describe a psychology experiment that illustrates exactly how this curse works. Let me try to summarize it for you.

In 1990, Elizabeth Newton earned a Ph.D. in psychology at Stanford University by studying a simple game involving subjects split into two groups: Tappers and Listeners.

Tappers were given a list of 25 well-known songs, such as “Happy Birthday” and “The Star-Spangled Banner.” Each was asked to pick a song and then tap out the rhythm to a listener. The listener’s job was to guess the song based on the tapping. Sounds easy, right?

Wrong. As it turns out, being a listener in this experiment is tough. Of the 120 trials in this experiment, listeners guessed only 3 correctly (that’s only 2.5%)! That’s not even the most interesting part though…before the listeners guessed the name of a song, the experimenters asked the tappers to predict the likelihood of the listeners guessing the song. The tappers predicted the odds at 50%. They were off by a factor of 20!

Why is this?

Well, the listeners only heard an oddly syncopated knocking, sort of like gibberish Morse Code. Meanwhile the tappers, because they knew the song, heard every aspect of it in their head - the rhythm, the melody, and the lyrics. It was impossible for the tappers to ignore that extra information.

As an investment advisor, you can learn a powerful lesson from this by realizing how hard it is to see past your own expertise. Resist the temptation to be like the tappers in this study who, according to the researchers, bore exasperated looks on their faces suggesting that they were really thinking, “It’s so obvious! How could you be so stupid?”

If we want to have more productive conversations with investors, it’s our responsibility to overcome the “Curse of Knowledge” by thinking about what the investor is hearing. Next time you’re speaking to clients, imagine yourself in their place and ask yourself if you would understand what you’re talking about.