A Model of Credulity and Skepticism

by Mr. Cheap

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Some time ago Preet, Mike (& Mrs Pillars) and I got together for some yummy Thai food and adult beverages.  At one point I was expressing skeptism about something, and Preet wryly responded “Skeptical?  You?  No, never!”  While I’ll leave my own personal skepticism as an issue between myself and the team of psychologists in Vienna focused on my therapy, I’ve since been developing a model of the spectrum of credulity and skepticism.

As much as I’m probably closer to one end of the scale than the other, I don’t want to claim any correlation between intelligence or the “proper” perspective.  It’s just different ways to view the world, the right blend of which is different for every person and situation.  I’m not suggesting that this model is of any inherent utility, it’s more something I’ve been thinking about and find interesting (and hoped some readers will as well).  A number of people I’ve discussed this with agree that there’s a spectrum between credulity and skepticism, but had never thought of it in terms of discrete levels.

Getting the right level of credulity / skepticism is VITAL for personal finance.  We’re constantly bombarded by more information then we can process, all of which may (or may not) impact investments.  Paying attention to the right information (and ignoring the wrong information) can be the determining factor in many investments.

There was an interesting psychological experiment (some details, and a video, were posted to boingboing) that contrasted human willingness to blindly emulate one another to chimps.  The original paper this is based on is available here for anyone who has access through a university (or is willing to pay).

Credulity Level 1

At credulity level 1 the general assumption is that all people always tell the truth and aren’t motivated by bias.  If someone asserts something, they’re taken at face value.  The Invention of Lying explores the idea of an entire world (except for one man) which operates on this principle.

One of the big advantages of this level is you don’t have to evaluate information:  you just believe it all.  This is probably reasonable when you’re in a totally foreign environment and are trying to figure out how to function.  I personally went through this when I’ve lived abroad in the past, if someone told me I should do something (or not do something), I’d just believe them and change my behaviour.  Sure, maybe they were tricking me but it was easier to just follow what natives suggested (since, hey, it’s their country, right?).

The big disadvantage of this is that you’re very easily deceived and exploited.  Sadly, there’s a whole class of scams that exploit recent immigrants (since they are more likely to be at this levels as detailed above).

Credulity Level 2

This includes the belief that something is true because it’s in a book or newspaper (implicit faith in the editorial control of the publisher) or because a trusted source (such as a friend or family member) said so.  On the face of it this might be a reasonable and effective filtering mechanism.

This level is required for education, where someone is designated the teacher and the other the student.  Yes, it’s possible to learn if you challenge every assertion made by a teacher, but there are precious few environments that would allow this sort of behaviour from a student.  For things like learning which foods are safe to eat or which are poisonous, children would starve (or die from poisoning) if they couldn’t accept this level with their parents.

The problem occurs when someone in the trusted group is tricked, the idea can then spread quickly through their social network as each contact unquestioningly believes what was told to them.

Credulity Level 3

At this level you trust your own experiences.  Once something has happened to you and you’ve learned about it, you make predictions about the future based on those experiences and trust them.

This can be much more powerful than blindly following a teacher once you gain a deeper understanding of a domain of knowledge, as you experiences can correct misunderstandings your teacher had (“It’s a poor student who doesn’t surpass his master”).  If your real estate mentor told you to always avoid properties with foundation problems, but you come up with a strategy, based on your own experiences, which allows you to lucratively flip properties with foundation problems you might be the only one operating in a lucrative sub-market.

Things change and it can be dangerous to trust what happened in the past.  Bubbles form because an investment keeps paying off, so more money keeps pouring into it (as everyone keeps expecting the future to be like the past), which causes it to keep increasing in value, until suddenly everyone in Holland looks around and asks why they’re all so crazy for tulip bulbs.

Credulity Level 4

At this level you trust what you can sense (or reason about).

This can be worthwhile when you incorporate your personal experiences with an understanding of different environment and determine when you’re in a familiar situation and when things have changed.  Andrew Lahde understood the credit crisis before most people in the financial industry saw where it was heading, and by understanding the financial principles at play (instead of just counting on “it’s been making money up until now, I guess it’ll keep making money!”) he achieved an astronomical return for his hedge fund.

Sometimes your senses (or the data) deceive you.  A friend of mine’s father (an engineer), wholeheartedly believes in ghosts because he remembers seeing one as a child.  Beyond just the vivid imaginations of children, sometimes we see things that simply aren’t there.  Richard Dawkins relates the anecdote in one of his books of seeing a demonic visage superimposed on a neighbour’s house, which, as he approached, broke down to be just light shining out from windows.

Credulity Level 5

At this level you doubt everything (and reject any avenue the provides concrete information as unreliable).  It’s possible the world is a simulation (think Neo from The Matrix) and that everything is a lie, but how could we ever know?  Even if you see cracks in reality, how can you reason about what is outside?  At this level of extreme skepticism, everything is questioned (and doubted).  You see some people at this level in specific areas of their lives (such as conspiracy theorists, holocaust deniers or tax protesters, who remain skeptical of events that obviously happened no mater what evidence or reasoning is offered to them).

This level of skeptism can sometimes lead to radical breakthroughs, such as Einstein believing there was more to physics than what Newton had outlined.

The downside is obviously when massive amounts of thought and effort are wasted on attempts to debunk something that is, actually, true.

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{ 8 comments… read them below or add one }

1 Four Pillars

I find as I get older I keep going up in the numbers. While it’s great that I’m not a #1 or #2 anymore – I don’t want to be protesting conspiracy theories in my retirement.

2 Mr. Cheap

Mike: Sadly, I’m afraid that’s unavoidable. Be prepared to sign up with the “Our Prime Ministers Have Been Robots Since 2032! Tell Everyone You Know!!!” group.

3 Four Pillars

Oh well – protests can be fun.

Hopefully I’ll be like Abe Simpson with lots of interesting stories

I wore an onion on my belt, because that was the style at the time.

4 Kathryn

Mmm, Thai food and adult beverages. I’d love to join ya’ll next time. :-)

5 Mr. Cheap

Kathryn: Definitely!

6 Preet Banerjee

I’m skeptical that you picked the right names for these categories. I would’ve picked 20′s, 30′, 40′, 50′s and 60′s+. :)

7 Mr. Cheap

Preet: lol :-) I’ve always been skeptical beyond my years…

8 Ex

I’m always looking at the contrarian perspective, even works well in the stock marktet

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