Eye2theLongRun

One of the more dangerous phenomena identified by those working in economics and the cognitive behavioural domain in recent years is the “Halo Effect”. This refers to situations in which expectations of the success and wisdom of those having expertise, experience, skill and success – perhaps even notoriety – in a given field such as sport, medicine, politics, art, mathematics, company management, politics or indeed any particular reasonably well defined arena is unjustifiably extended into other unrelated fields. This seems to be common.

Thus it is not uncommon to find All Blacks professing expertise in selecting the best garage door to buy, actresses promising longer, wrinkle free lives for all, and celebrities in almost any field lauding the benefits of goods, services and behaviours unrelated to their core knowledge and expertise.

There may be some underlying generic attributes which justify an element of this. Characteristics such as determination, energy, passion, dedication to an objective might be examples. However in a number of cases the halo reaching well beyond its originating point seems far fetched and unlikely to emanate from any serious basis for favourable compariuson.

At present we appear to suffer this problem in the health area. Expertise in epidemiology for example would seem no basis for predicting likely human behaviour in the light of public policy initiatives, significant success in diagnosis and treatment of various health conditions is not necessarily a crucial component in understanding behaviour patterns of groups or crowds or even individuals.

Prediction of economic outcomes and behaviour patterns in particular off the back of medical or public health expertise is likely a doomed enterprise subject, at the very least, to risks of enhancing uncertainty, offering inappropriate levels of risk aversity, ignoring critical factors (such as the relevant opportunity costs) and failing to come to grips with risk management optimisation or the need to avoid absolutes as benchmarks when desirable outcomes are inextricably bound up with comparative assessment.

A more sound approach then is for experts to “stay within their circle of competence” to quote Warren Buffett, and in particular refrain from making attention earning or seeking, melodramatic assertions regarding “problems” and their “solution”.