Empowerment, Happiness, Innovation, Personal Growth, Success

What We Think We Know

One of the more difficult things that each of us will encounter in our lives is the juxtaposition of what we know against what we think we know. The reason why this creates difficulty is because our own perception of our own knowledge (i.e. what we think we know) frequently exceeds what we really know by a significant margin. Furthermore, this phenomenon seems to expand as our knowledge base increases. This produces the unfortunate effect of creating an intellectual elite that over-estimates the depth and scope of their own knowledge by many orders of magnitude.

This present an extreme amount of danger when decisions for large amounts of resources are controlled by a small number of people through the government, or through a financial institution. The reason for this is because when people over estimate their knowledge of the market, they under estimate the chances of failure and frequently over expose themselves, their investors, and the taxpayers to catastrophic losses.

While it is pleasing to the vanity of those in power to make claims about how intelligent people should be in charge of everything, it may be better if people were in charge of themselves. The reason for this is because I can only destroy my own resources if I over estimate my knowledge. When a small regime in the government is in charge of vast resources, there is a tremendous risk of unfathomable, catastrophic failure if their estimates are incorrect.

Recently, this effect has compounded upon itself many times over. The unfortunate set of events precipitating this consolidation of power was triggered by the massive financial sector bailout engineered in lieu of allowing the banks to go into liquidation. This action created two destructive outcomes… the first is that it rewarded the irresponsible risk taking of the banks that were bailed out and the second was that it prevented the banks assets from being liquidated to responsible companies that did not engage in high risk lending practices and massively leveraged derivatives.

Furthermore, the financial sector bailout served as a precedent for an automotive sector bailout that still resulted in bankruptcy for two of the ‘big three’ US auto manufacturers. In the end, the government is now a principal player in the automotive industry and either approves or purchases the overwhelming majority of all home mortgages. With this amount of power and control, there is tremendous risk of economic damage by even a slight mistake in estimating the cost or effect of a program or decision.

In the end, each of us should be aware of what we ‘really’ know, and seek to maintain perspective when estimating the extent of our abilities. When we are making decisions and constructing strategies, it is always wise to ask what happens if I am wrong? By understanding the extent and limits of our knowledge, it will help each of us to minimize the impact if our decisions are wrong and maximize the benefit if our decisions are right.

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