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It's About Context...

People frequently ask my opinion on financial issues and economic events. This blog allows me to answer their questions and provide context for those things that affect their financial health.

Do Studies Still Mean Anything? (Part 2)

In Part 1, we reviewed reasons why people are skeptical when they hear various claims made by so-called studies.  In Part 2, I will address the question “Should we believe the science?”

Science is awesome.  There are amazing things being studied and discovered all the time in many fields.

The question is how do you find the real science given an environment where there’s so much sensationalism and spin to present a specific and salable answer?

It can be tough with both the media and corporations preferring emotionally-charged buzz words and images that attract an audience and help to sell things.

The only thing we as consumers and investors should ever care about is the empirical evidence from the study.  We want proof of the claims using real-world examples.  And not just any proof, but empirically-validated proof. This means studies that when conducted by others generate similar results (Remember the scientific method?)

In our modern society, we always seems to be looking for the secret or magic pill that leads to easy success, right now, quick, fast and in a hurry.  We have become overly impatient and extremely fearful.

From a personal finance perspective, this combination often leads to creation of the investment or insurance product de jour.  Inevitably this leads the investor or purchaser to regrettable decisions and disastrous consequences.

So, instead of employing logic and being patient, the masses jump from trend to trend.  Then they wonder what went wrong, but continue to behave as if they didn’t learn the lesson from the last disaster.  Or, they’ve become too afraid to act even when the evidence is clear.

Looking for evidence and being patient is the logical and intelligent approach.   No initial scientific study or theory ever has empirical evidence from the start.

In financial science, studies of the capital markets and well vetted and scrutinized long-term research have discovered factors of investment return and a good deal more about the best way to invest over time.  It’s taken decades and lots of additional studies for the empirical evidence to validate the science.

Whenever I see a story or someone challenging the well-vetted research, it becomes clear that (a) they have never bothered to read the actual research studies and are operating on hearsay. Or (b)—the more likely option—they have something to sell.

Investors have no trouble finding money managers that claim to be able to time the market and to figure out in advance what is most likely to outperform in the future.  Mounds of evidence suggest otherwise.

Yes, I understand consumers and investors want it now.  But for an average person, patience and logic make much more sense.

Empirically-validated evidence can make life much easier. In the case of financial science, someone else has devoted his or her entire career doing the work, we just need to read it in its entirety.

Most of us don’t—maybe it’s due to the human condition to search for the simple and easy.  So, we opt for un-proven hype instead of rationale.  The media and corporations know this and use to their advantage.

When we base our decisions on the long-term empirical evidence, it really doesn’t matter what the media tells us.  We can easily look past the hype.

Embrace the simplicity of proven scientific evidence and just roll with it.  And, keep rolling with it until real science suggests something better.  Remember, science by its very definition, can always change.

Science is awesome.  Trying to live your life and making financial decisions based on the latest hype you make yourself part of the lab experiment.  

Let others be the financial guinea pigs so you don’t have to be.  That is, unless of course you’re willing to accept the down side risks and you have enough resources or multiple lifetimes to recover.


The Personal Side Drives Decision-Making. Now What...
Do Studies Still Mean Anything? (Part 1)


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