Ignorance pays off …

… Zumindest in einigen Bereichen wie der Borse schauen die Experten schlecht aus

Actually one tells us yes constantly that we live in a knowledge society, in which lifelong learning is necessary. There are supposed to be problems with the flood of information that comes at us thanks to the new media. But then there are the experts who call themselves knowledge workers, and of course new methods of knowledge management. Sometimes, of course, knowledge does not seem to pay off at all. Even those who do not burden themselves with knowledge or information can be quite successful, at least on the stock market, as a study by the Max Planck Institute for Educational Research in Berlin claims to have discovered.

In the background of the investigation there is of course also a concept: the so-called recognition heuristic. It is based on the tragedy of people who, for the sake of simplicity, always prefer the known to the unknown when making decisions. This economic attitude, which saves cognitive work, is not only a method of "method", to draw quick conclusions from limited information, it could also be said to be based on not taking off one’s blinders and insisting on one’s ignorance. One would think that decisions made with less knowledge would lead to worse results, but apparently there are also cases where a less is more approach can lead to worse results "Less-is-more"-effect, if one simply chooses what one already knows.

If someone wants to invest in stocks, he is not only faced with the problem that the developments are unpredictable, but also that he has an incalculable number of possibilities to choose from. The scientists from the Max Planck Institute have chosen the stock market to test their thesis that the recognition heuristic can be better in certain situations than decisions made by processing a lot of information, which can have quite practical implications for everyone: "oconomists and financial scientists are trying to counter market developments with increasingly sophisticated theories and control methods, but with unsatisfactory results. We wanted to see how the recognition heuristic was preserved in the stock market; d.H., we have tested the performance of this method in an area that experts say is a high mab of knowledge."

A total of 480 people in Germany and the USA were asked which companies they knew by name from 800 companies traded on the New York Stock Exchange and the German stock market. 180 laymen and 60 students each of finance and business administration in Chicago and Munich were asked. According to the recognition heuristic, it is advisable to acquire those stocks, "which have high recognition rates among relatively uninformed persons." For each group two share packages were put together. One consisted of shares in domestic companies known to at least 90 percent of respondents, the other of the 10 most recognized foreign companies. In this case, 90 percent could not be assumed, because the ignorance was too coarse.

Profit and loss of blocks of shares was compared in the period from December 1996 to June 1997 with profit and loss of blocks of shares with little or no known companies, of mutual funds, of randomly determined companies and of the market as a whole, i.E.H. Dow Jones, Dax etc., compared. In this comparison, the stock packages of the most well-known companies achieved higher profits than those of little-known or unknown companies, six out of eight packages also outperformed the investment funds managed by experts, and the packages of Munich or Chicago laymen also performed better than the others. Chicago laymen also performed better than the Dax 30 or the Dow Jones 30. However, in the case of domestic stocks, the experts did better, but in the case of foreign stocks, about which the laymen knew the least, the experts did better and also outperformed the packages of stocks from randomly selected companies.

"It has been shown", so the scientists interpret the result of the investigation, "dass fur den Untersuchungszeitraum (Dez. 1996 to June 1997) the recognition heuristic on the stock market could compete very well with the expert knowledge of fund managers and with market indicators and even surpassed them in some cases. The recognition heuristic proves the "beneficial effect of ignorance". The strategies of the economists and financial experts, which work with far more information and require far greater processing capacity, proved to be less successful in comparison."

Of course, ignorance pays off best in areas where the available knowledge is not sufficient to make successful decisions, as is the case at the stock exchange. Normally, the well-known companies will also be the rough ones whose stocks are more successful in the long run – perhaps in line with the recognition heuristic, which only proved the importance of attentional soconomy. There is no lack of methods to predict or explain the behavior of the stock index, but so far no one has cracked this chaotic system, which in fact is more like a casino, where, as we know, rational decisions and knowledge do not protect from losses, and even the most stupid strategy, which reduces the complexity the most, can lead to surprising successes. Of course, one should not generalize the recognition heuristic by sticking only to what one already knows. However, with computer simulations we can now for the first time scientifically investigate at least such complex systems as a stock exchange in order to get to know their laws. But also from this no method resulted so far, how one can crack the stock exchange by knowledge (The simple complex).

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