The Rational Investor #010: Annie Duke on the Power of “I Don’t Know”
Happy Saturday to you,
Welcome to the 10th edition of The Rational Investor Newsletter.
If we’re honest, any good financial advisor knows that the correct answer to most client questions is either “It depends.” or “I don’t know.” Of course, that’s not the end of the conversation or the final answer, but when we’re early in our career, saying “I don’t know.” is the scariest thing in the world. Because, we’re supposed to know everything, right? Of course not, but it takes years to get comfortable admitting that we don’t know.
Well, today’s quote comes from Annie Duke’s book, Thinking in Bets, and it’s about the unexpected power behind the phrase, “I don’t know.”
If you haven’t read Duke’s book, I highly recommend it as I believe that it’s a must-read for every financial advisor and investor since we’re constantly making decisions without the ability to know all the facts.
Onto the main event…
Here’s Annie Duke on the Power of “I Don’t Know.”:
We are discouraged from saying “I don’t know” or “I’m not sure.” We regard those expressions as vague, unhelpful, and even evasive. But getting comfortable with “I’m not sure” is a vital step to being a better decision-maker. We have to make peace with not knowing.
Embracing “I’m not sure” is difficult. We are trained in school that saying “I don’t know” is a bad thing. Not knowing in school is considered a failure of learning. Write “I don’t know” as an answer on a test and your answer will be marked wrong.
Admitting that we don’t know has an undeservedly bad reputation. Of course, we want to encourage acquiring knowledge, but the first step is understanding what we don’t know. Neuroscientist Stuart Firestein’s book Ignorance: How it Drives Science champions the virtue of recognizing the limits of our knowledge. (You can get a taste of the book by watching his TED Talk, “The Pursuit of Ignorance.”) In the book and the talk, Firestein points out that in science, “I don’t know” is not a failure but a necessary step toward enlightenment. He backs this up with a great quote from physicist James Clerk Maxwell: “Thoroughly conscious ignorance is the prelude to every real advance in science.” I would add that this is a prelude to every great decision that has ever been made.
Let me bring this back to financial planning and investing decisions for a moment.
Knowing what the future holds for the market is, obviously, impossible. At least, that should be obvious and yet, countless irrevocably awful decisions have been made based on some assumed knowledge of the future that turned out to be bunk.
Thus, it’s the illusion of knowledge about the future that leads to unexpected risk because the world almost always ends up differently than we thought. This entire decade is evidence of the unexpected being played on repeat.
Ironically then, the power must be found in the acknowledgment of our ignorance (NOT knowing) because it forces us to plan for a wide variety of outcomes. This follows the line of thinking that, “It’s better to be roughly right than precisely wrong.”
By this logic, it’s easier to see Duke’s point that every great decision is built on the foundation of NOT knowing. It’s counterintuitive, but that’s the unexpected power of “I don’t know.”
Thanks for reading. I’ll be back again next week with more timeless wisdom from great investors.
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