Part 48

Hello and welcome back to Mortgage Advisor on F.I.R.E.  This week I will talk a little about the Dunning-Kruger effect and how it relates to both the coronavirus pandemic and financial advice.

Quote of the Week

The Dunning-Kruger effect is a cognitive bias in which people overestimate their ability or knowledge.  It explains how believing in your own ability or knowledge is not the same as having ability or knowledge.  We have all encountered people who seem to be overconfident or arrogant about their own ability.  Unfortunately, this can occasionally be dangerous and an example of this would be Donald Trump who continually promotes his own expertise on various subjects despite the evidence showing his complete incompetence.  

One of the negative consequences of the proliferation of knowledge through the internet is that many people believe themselves to be experts after a quick look on Wikipedia.  I’m a fan of Wikipedia; I think it is a fantastic tool that helps provide an overview of any subject I’m unfamiliar with.  It’s a starting point to learning though, and not the end.

The coronavirus has been a hot topic for almost a year now.  I’ve heard opinions on the pandemic from all angles and everyone from taxi drivers to bar staff, from professional athletes to shop assistants seem to think they know the answer, as do I.  The thing is, my opinion is not as valid as those opinions held by the medical experts, and neither are those opinions held by the taxi drivers or athletes.  

We are all entitled to our opinions but that does not mean our opinions are all equally valid, and this is something that a lot of people cannot accept.  We have been conditioned to believe all opinions are equal, and it’s eroding the concept of expert knowledge and respect for authority.  I’m not saying we should all blindly follow the orders of authority figures.  It’s right to question things, but it should always be with the understanding that we don’t know as much as we think we do.

Credit: https://www.dictionary.com/e/pop-culture/dunning-kruger-effect/

Most of the time, the Dunning-Kruger effect is just a harmless cognitive bias but when it comes to things like a global pandemic it can be deadly.  I’m going to use the example of wearing face masks.  The effectiveness of face masks is debatable.  There are many different types of face mask which are effective to varying degrees.  I’ve heard people say things like “why do I need to wear a mask if everyone else is?” or “why do we need to socially distance if masks work?”  These are prime examples of people not understanding the difference between risk elimination and risk management, but they think that they know more than the experts who are recommending these measures.  Dunning-Kruger does not explain all of this resistance to authority.  Some people are just resistant to authority generally and if this overlaps with Dunning-Kruger it can be a perfect storm of ignorance and a misguided belief in one’s own expertise, whilst doing the opposite of what one’s told just because it’s contrary to the advice of the authority.  

Coming back to face masks for a moment.  Face masks are not going to protect people from coronavirus completely.  They offer some protection.  This protection is enhanced if more people wear masks; the more people wearing masks, the greater the protection to society.  If masks are combined with social distancing, the protection is increased further.  The risk is never eliminated completely as that is not possible.  The more barriers you erect, the more protection you have.  It’s that simple.

Weekly Update

I’m still off work as I’m not right mentally yet.  I’m having difficulty sleeping and concentrating.  Just writing this week’s blog is an effort, whereas it is usually something I look forward to.  I have been keeping up with the gym though, and I set myself a goal last week of walking at least 10,000 steps a day.  I managed to do that Sunday through to Saturday but then my knee started aching, so I’m having a break from that for a day or so.  

I have my next exam coming up for my financial advisor qualification but I’ve postponed it as I can’t concentrate on my studies either.  I’ve been spending a lot of my free time listening to audiobooks, playing BlockuDoku on my iPhone or watching Deep Space Nine on Netflix.  I’m not the sort of person that is generally happy to just sit around and do nothing, but I can’t seem to motivate myself to do anything more productive right now.  I think I need to learn to not feel bad about feeling bad.  

Health Update

I’m not managing to lose any weight despite all my exercise but to be fair, my diet is not what it could be.  I need to get a handle on my diet and it’s generally fine through the day.  However, once we get to around 8pm, it’s like I feel the need to snack.  It’s frustrating but I don’t know what the key is.  

As regular readers, and those who know me well, will know, I have had a long history of physical and mental health problems.  In recent years I’ve started to believe that there must be an underlying cause that explains the myriad of health issues I’ve experienced.  I think I may have found that unifying cause but I need to investigate it further and seek medical advice, as there’s nothing worse than self-diagnosing via Doctor Google.  

When I know more, I may talk about it here but I do think that there are limits to how transparent a blog should be.  I’m also conscious that this is a blog primarily looking at finance and investment, and it’s not a health blog.  

Financial Update

Premium Bonds: £20,700 (no change from last update).

Stocks and Shares ISA: £11,959.46 (down £225.74 from last update).

Fuck It Fund: £0.00 (no change from last update).

Property Value: £187,554 (no change from last update).

Total Assets: £220,213.46 (down £225.74 from last update).

Credit Card: £639.06 (up £639.06 from last update).

Residential Mortgage: £142,814.69 (no change from last update). 

Total Debts: £143,453.75 (up £639.06 from last update).

Total Wealth Figure: £76,759.71 (down £864.80 from last update). 

Investment Income in 2020: £111.36 (no change from last update) (target £2,000).

A huge drop in my Total Wealth this week which is mostly down to the fact my credit card balance has increased.  There are two factors behind this; first of all I’ve not paid the card off as I just didn’t get around to it.  There is some normal day-to-day spending on there which I normally pay off right away, so that will be corrected for next week.  However, there is a second factor which is that I’ve had to replace my Nespresso machine.  My trusty Nespresso Expert machine has broken down beyond repair and I’ve replaced it with the Atelier machine.  I didn’t plan on replacing the machine just yet, but coffee is one of the few vices I have and the idea of going more than a day or two with coffee filled with me a cold dread.  I love the new machine though.  It looks fantastic and the coffee it makes tastes great.

The stock market continues to plod along.  In the last few months I’ve invested over £2,000 into my ISA but the value of the ISA has actually decreased.  It’s not a major concern right now, as I’m still accumulating units and when the market recovers, my gains will be realised.  I will need the market to recover at some point in the next few years if I’m to stay on track to retire by age 40 though.  

Dunning-Kruger and Money

A few days ago someone mentioned that I would be better off using my savings to pay down my mortgage. This is another example of Dunning-Kruger in action. This person was not in full receipt of all the facts, such as the fact my current mortgage rate is 0.1%. A rate that low is practically unheard of, and so it makes more sense to keep my money invested where I can get a better return. 

There is a lot of uninformed advice out there in the financial world. In this blog, I try to stay clear of giving specific advice and instead aim to educate and give general guidance.  The key point to all this is that no one knows as much as they think they do, myself included. 

I’m hoping that within the next couple of weeks I’ll be able to confirm that our BTL purchase has completed.  Other than that, I’m afraid that’s all I have for now.  

Final Notes

Thank you for reading and I hope you have a great week.  If you enjoy Mortgage Advisor on FIRE, please share the blog on your social media.  If you have any questions, please get in touch on Twitter (@nowwelive01) or Instagram (@david_scothern), or leave a comment on this post.

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