Thursday, July 16, 2015

Independent Advice

It would be nice if decisions simplified down to something tidy like the Golden Rule - 'Treat others as you would like them to treat you'. We could get on with our own lives and as long as we don't do anything to harm anyone else, it is all good. Unfortunately 'it's more complicated than that'. Everything we do has risks. Deciding to drive a car is putting other people's lives at risk. You aren't choosing to kill someone, but you have one set of eyes, one set of ears, and a concentration span. You make mistakes. Other people make mistakes. Not necessarily intentional mistakes but cars kill way more people than terrorists. We have to accept that risk to function. You can't get rid of risk, you can just manage it.

Looking forward to Driverless Cars

If we went through every single possible scenario, its potential outcome and had the wisdom to assign a cost and a benefit to each result we would never do anything. There is too much uncertainty. Fortunately we have our own inbuilt set of prejudices and blindspots that let us think - 'It's simpler than that' and get on with it. Till something goes horribly wrong and we realise we have to adjust.

One issue is what to do when you are providing advice to someone else? You are sharing your decision short cuts. You may have some knowledge because you have spent more time than the other person going through more scenarios. Since there are an infinite number of things you could consider, what you know is closer to what the person you are advising knows than to what there is to know. Even if they know nothing. Things can still go wrong. If you admit that you don't know, people are less likely to follow your advice. People like confidence. We don't like to accept that the story that helps us act is just a story.

Enter a system where people pay for advice. Enter a system where there is a government that regulates advice. That combination of a financial exchange and laws to ensure the advice is good makes the story more believable. You can relax.

It also makes advice very expensive. Take financial planning for example. The truth is that advice should be bespoke rather than generic. It should take into account your personal circumstance, aspirations, knowledge level, support structures, skills and emotional intelligence. The person giving advice should know you. They should know how you would respond to various situations. They should know you personally.

There lies the problem. People who may know you well enough to give advice may not want to give you advice. They may value your relationship so much that the mere risk that something may go wrong stops them giving advice. Many people who understand finances reasonably well for the own purposes will not give advice to friends and family for this reason. They love them. So they send them off to pay for advice.

Governments step in to try protect against unscrupulous people giving bad advice. They look at incentive structures to try and align interests. They ensure people don't give generic advice. This all sounds good, but the cost is that most people can then not afford advice. The cost of good advice is more than the amount they have to save!

I think the people best placed to give advice are friends who don't charge. Truly independent advice isn't independent because you are the one paying for it. It is independent because it is given freely. By not charging, then is no presumed risk transfer. Advice, rather than an exchange, is just the sharing of a story. A story full of holes that you can use or not. 'All advice is autobiographical' says Austin Kleon. Well, our biography is also the biography of our friends, family and community.
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