On May 23, 2012, I gave a presentation to the members of the San Gabriel Valley Chapter of the Financial Planning Association. The topic was "Are Attorneys and the Legal System Facilitating the Creation of Post-Divorce Functional or Dysfunctional Families?" The program was very well-received and they asked me to join the organization, which I did. As a member, I receive several monthly publications, including the Journal of Financial Planning® - Expanding the Body of Knowledge in the Financial Planning Profession. Although I am not a Financial Planner, I scan the Journal to see if any topics are of interest to me and I have come to discover that many of the articles are very useful and not just for Financial Planners. In fact, in the May 2013 edition alone, I found two articles of tremendous value.
One article was by Jay Mooreland, CFP® and is titled, "Controlling the Urges: How Biases Influence Our Investment Decisions." The following is a quote from that article: "Warren Buffett, responding to a question about what makes a successful investor, said, 'Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.' These urges are known as behavioral biases to psychologists and behavioral economists. Behavioral biases are traits or tendencies that influence us to think and act in certain ways. All people have some combination of behavioral biases -- they contribute to our individuality, and when it comes to investing, our irrationality." Can't we say the same thing when it comes to working with individuals dealing with legal matters?
The other article was by Michael T. Carpenter, JD, CPA, CFP® and is titled, "Help Investors Make Better Risk/Reward Decisions." In that article, he states in pertinent part as follows: "Worldwide, we humans share a curious, common, and overlooked propensity to automatically perceive many risks as greater or less than they actually are. These deep-rooted risk misperceptions make it easy to unknowingly set ourselves up for misjudgments, lost opportunities, and unpleasant surprises, particularly when investing. Without realizing it, these and other ingrained perception errors can cause us to undermine our own best interests." Doesn't this same issue arise within the legal realm?
In addition to receiving such information in their monthly publications, the members of the San Gabriel Valley Chapter of the organization had the benefit of hearing Kerry Johnson, MBA, Ph.D. speak about it at their monthly lunch meeting on May 22, 2013. The featured topic was "Behavioral Investing - Why Smart People Make Dumb Mistakes with their Money." Among other things, Dr. Johnson spoke about the status quo bias and the confirmation bias. According to Dr. Johnson, "the status quo bias is an aversion to change and that it causes people a great deal of misery. People don't change. This is why the recidivism rate for people released from prison is 83 percent. This is why the divorce rate increases from 50 pecent for first marriages to 67 percent for second marriages to 73 percent for third marriages. The reason the failure rate increases is because people don't change the behavior that contributed to the prior divorce(s)," said Dr. Johnson. He then stated that the "confirmation bias is responsible for people voting for political candidates who don't support any of their personal values and beliefs." The confirmation bias is a "tendency of people to favor information that confirms their beliefs."
I am going to say it once again -- people don't change! Does that mean that change is impossible? No. However, it requires three things to occur. First, the person must actually look at themselves in the mirror, warts and all (be self-aware). Second, the person must want to remove the warts. Third, the removal of such warts requires a great deal of effort. Otherwise, as they say, a leopard doesn't change its spots.
Financial Planners are learning this information in order to better assist their clients in making wise investment decisions.
Interestingly enough, similar information is being provided to software engineers in order to assist them in making better software. In fact, one publication states as follows: "For all of these biases, the most important step is to recognize that they exist, and try to identify them when they appear in your day to day life. Once you do that, just take a step back and think about the situation." The business community is also learning about such things because such biases interfere with innovation. As if that weren't enough, the CIA has written about cognitive biases because they negatively impact the Intelligence Community.
Why then isn't such information required learning for lawyers? After all, people call upon lawyers to help them solve their problems. Would it hurt lawyers to learn such information in an effort to better assist their clients in making wise decisions? Keep in mind that the lawyers who tend to take the time to learn such information are those involved in consensual dispute resolution. This information is taught in mediation and collaborative law trainings because it helps us to assist our clients in resolving their own disputes. However, this information is not typically included in continuing education trainings to the mainstream legal community. Which lawyers are better suited to help their clients solve their problems?