It’s no secret that I’m a huge fan of curiosity. I believe that ‘why?’, the beloved question of toddlers and pre-schoolers, really is one of the best words in the English language.
Imagine what the world would be like if everyone asked ‘why?’ before doing something. Often stupid things.
Maybe there would be fewer wars. Companies would act in the interests of their communities, not just their shareholders.
The rate of life changing inventions would skyrocket if we were all allowed to unleash our creativity and challenge the status quo.
At the very least, we’d all probably become a little wealthier, because as I discovered this week, it well and truly pays to embrace your inner skeptic.
How Information Asymmetry Affects Your Life
In Freaknomics: A Rogue Economist Explores the Hidden Side of Everything, Steven Levitt and Stephen Dubner introduce a concept called information asymmetry. This is the idea in economics that in an exchange or contract, one party often is disadvantaged by having less information than the other.
For example, when you step into a car yard to buy a second hand car, you neither have all the information about the car you might be interested in, nor the technical skills to find out. So you don’t know if you’re buying a good deal or a lemon. You’re at a disadvantage compared to the sales person.
The primary reason for the disadvantage is the people generally act in their own interest. Which probably doesn’t surprise you in our used car sales person example. Or maybe when dealing with real estate agents or financial advisors.
In reality, it happens even with professionals who you have to put your trust in, like doctors.
According to Levitt and Dubner, the rates of caesarean births increase during slow times as obstetricians talk more women into having the procedure to boost their own bottom line.
If you’re thinking ‘seriously!?!’ that can’t be right, who could get ‘talked into’ something like having a C section. And if you’re thinking, that would NEVER happen to me, I’m immune. Well you might be surprised. Or you’re a man.
Firstly, the data backup it up. Secondly, I gave birth in the hospital with the highest C section rates in the state and I can tell you, the pressure in the final weeks pre-delivery from my obstetrician was subtle but ever present.
“This baby has an enormous head….off the charts…come to think of it….there might be two heads!”
And I wasn’t the only one. Everyone I know who has delivered at this hospital was given gentle nudges to reconsider their ‘I’ll take it as it comes approach’ to labour.
The point being that information asymmetry is very real and you might not even know when you’re not getting advice that’s in your own best interest.
What you can do about Information Asymmetry
A terrific place to start is reading personal finance blogs. I kid you not.
Research actually shows that personal finance bloggers help to decrease “harmful information asymmetries between key market investors”. That’s you, me and the bank baby!
According to the researchers, this fact highlights the societal relevance of blogging. How freaking awesome is that! So, if you’re feeling ho hum about your blog, know that you are important.
And if you’re reading – thank you! You’re why we do it.
Now where was I. Oh yes, unfortunately, you can’t become an expert at everything and solve all your problems.
But you do have one unusually powerful tool at your disposal – your curiosity. The best way for you to fight information asymmetry is to embrace your inner skeptic and question everything.
It really does pay. Anecdote time!
The Real Estate Agent, the Town Planner and I in “The Case of The Slightly Too Small Block”
Freaknomics take a bit of a shot at real estate agents and how they might not be working as hard for you as you imagined. Despite this, I approached our local agent with the hope that she would enlighten me.
Specifically, I wanted to get a ball park valuation of what our house would sell for. Part of the reasoning was that the neighbourly gossip was that our block might be sub dividable and I thought the agent would be able to tell us.
After all, development potential would mean a higher sell price, right? And of course this would be a significant windfall for us.
Under the old town plan, the block was just shy of being developable and a gardener’s paradise. Under the new rules, well who knew?
During our meeting the agent told me flat out it wasn’t. I prompted her pointing out it was a big block and smaller lots were popping up around the area. But she convinced me it wasn’t.
Well not really. I needed to put the rumours to bed and called the council town planning department.
The town planner took a look at the block and confirmed it wasn’t sub dividable. This time I wasn’t going to beat about the bush and told him about the rumours I’d heard – something about being within 200 metres walking distance of something.
He zoomed out his map. “Oh yes,” he said, “you’re near a centre there. You’d have to confirm that it meets the minimum size requirement and that your block is within 200 metres of it and then you could put the proposal to Council.”
Ten minutes later, I had the right planning law up on my screen and had confirmed our block met the Council requirements, meaning our land is indeed sub-dividable.
Yet two experts had told me that it wasn’t. The possible cost to us, at least $50,000.
Curiously, we’ve been getting a steady stream of letters from interested buyers who wanted to do the transaction off market.
I presume if we’d sold – and avoided significant marketing costs and agents commissions – whether any of our interested buyers would have told us the real reason our block is so attractive.
Conclusion – it pays to do your due diligence, don’t believe everything you hear and if you have a shadow of doubt, keep asking questions.
3 Situations Where It Pays to Embrace Your Inner Skeptic
Here are three situations where I let loose my inner skeptic and I won’t take ‘your appointment is over and there’s a waiting room full of people waiting to see me’ for an answer. If that was you….ummm…sorry.
1. When the expert is using a lot of jargon or lingo
I don’t know if you’re trying to impress me with your vast wealth of knowledge on the subject. Or if you’re plan is to confuse me in the hope that I’ll fear looking stupid and just agree to whatever you say, but if I don’t understand something I’m going to keep asking you questions and repeating it back in language I understand until I know what you’re talking about. Or I’ll go home and Google it.
Do: If someone is using language you don’t understand, get them to explain it. That’s their job, it’s why you’re seeing them in the first place. Whatever you do don’t feel like you’re wasting their time or get embarrassed for not knowing the answer.
2. If you expected it should be possible
It’s been done before. By me, my neighbour or my best friend. I expect it will be possible, all of a sudden it’s not. Why? What makes this time different from last time?
Does ‘can’t be done’ actually mean ‘I couldn’t be bothered’; ‘I don’t want the work’; ‘you probably don’t want to pay what I want to charge you to do it’; ‘it’s not within my capabilities’; ‘it’s too hard and I slept badly and I feel like I’m coming down with swine flu, so just go away and leave me alone’.
Do: Find out the reason something isn’t possible, then ideally get a second opinion if there’s a lot of money at stake. You’d be surprised, what’s impossible for some can be possible for others. I’ve come across plenty of trades people who have said it can’t be done, got a second opinion and got a brilliant result.
3. When something smells fishy
I can see sub-divisions popping up around me and they sure look smaller than what I know is generally allowed. Plus there’s the neighbourhood gossip. I have a feeling other people are getting told a different story to what I am.
Hold the press, have I just uncovered a local development scandal involving the neighbours, the planning authority and our local member. Or do you not know what you’re talking about. Let’s find out….
Do: If something smells fishy and you feel you’re getting a different answer to other people or witnessing something happening, but you’re being told you can’t have it, figure out all the people you could ask to get a straight answer. Keep asking until you get the answer you want (then get it in writing) or have an explanation about how your situation is different from someone else’s.
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Is there a time when asking lots of questions paid off for you?