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BAM Intelligence

Arguments for Trusting the Data — Carl Richards

Why don’t we trust data? More to the point, why don’t we act on what data tells us?

I read an article last week at Grantland, the sports website that’s part of ESPN. Now, I’m not a football expert, but it made a persuasive case (based on data) for reconsidering the instinct to punt on the fourth down. So why don’t more coaches follow the data?

David H. Romer, a University of California, Berkeley professor, chalks it up to fear. As the article describes it:

“No one wants to be the guy who gets fired because he stopped punting. And the same fans and analysts who clamor for innovation are actually fueling that fear.”

It reminds me of the study I shared earlier this year about soccer goalies choosing to dive instead of standing in the middle of the net. Even though the data made a clear case for standing in the middle, goalies couldn’t help themselves. Diving just seemed more logical.

So again, why don’t we trust data?

■ It’s not natural.

Despite the data telling us one thing, it seems like we have a hard time ignoring cultural expectations that run counter to the numbers. Coaches punt because it’s expected. We invest in our brother-in-law’s latest sure thing even though the last five failed spectacularly. Of course, when children act this way, we call it peer pressure.

■ We believe we’re the exception.

It’s not a surprise, but we’re disinclined to think something applies to us because, of course, we’re above average. Even though it’s statistically unlikely that we can identify a mutual fund that will outperform an index fund, that doesn’t stop us from trying. The rules only apply to everyone else.

■ It might not work.

Yes, the data suggests that a particular course of action makes more sense over the long term. However, what if our window isn’t long enough? The economist John Maynard Keynes captured this issue perfectly when he said, “The market can stay irrational longer than you can stay solvent.” If we aren’t convinced it will work, then why do it?

■ We don’t know the data exists.

Habits, hunches, superstitions. How often do we make decisions based on one of these options? And we excuse the decisions because “we didn’t know better.” John Stephens, a friend and former physician turned financial adviser, likes to joke that if doctors wrote prescriptions like most people made investment decisions, we’d all be dead.

The idea of using data to make investment decisions feels foreign to many of us. We’ve gotten comfortable assuming that our “have a hunch, buy a bunch” approach qualifies as an acceptable investing strategy. It doesn’t take much digging to discover that this so-called strategy amounts to guessing. Now here’s a hunch that seems pretty safe: Guessing with your retirement money isn’t a good idea.

While the evidence supports following the data, be it in football or investing, we’re unlikely to do so. Now I can’t guarantee that knowing the reasons we’re unlikely to follow the data will change our behavior, but maybe it will cause us to ask a few more questions about why we don’t. And maybe with every question we ask, we’ll get a little closer to trusting the data.


This commentary appeared November 18 on NYTimes.com.

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Carl Richards is the creator of the weekly Sketch Guy column in The New York Times and is a columnist for Morningstar Advisor. Carl has also been featured in The Wall Street Journal, Financial Planning, Marketplace Money, The Leonard Lopate Show, Oprah.com and Forbes.com. His simple but meaningful sketches served as the foundation for his first book, “The Behavior Gap: Simple Ways to Stop Doing Dumb Things with Money.”

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