“The first rule of the Dunning-Kruger club is you don’t know you’re a member of the Dunning-Kruger club.”— David Dunning
"A man's got to know his limitations" - Dirty Harry (Clint Eastwood)
We just have too much confidence relative to our knowledge. This is once again seen with the current banking crisis. We have overconfident bankers and we have overconfident regulators. Both think they can make predictions about the future; the future of rates and the future of the bank environment. Both are not aware of their limitations.
If there is too much uncertainty, there needs to be more humility on what can happen. A lack of knowledge does not mean that there should be a failure to act. Action may be required, but the policy response should be measured to ensure that the unintended consequences will drive and constrain the future. There are many alternatives between no action and complete bail-outs. All should be considered.
The hazard of experts - How do you avoid this hazard effect with hedge fund managers?
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