LAS VEGAS – Stephen Dubner loves to put a pin in the balloon of popular perception. The co-author of the wildly popular Freakonomics book series and radio podcasts shared his ideas on financial advice and investing at a packed presentation at the annual IMCA conference.
Dubner – who said he once aspired to be a financial advisor – regaled the crowd with a series of unusual anecdotes: for example, what happened in an economic experiment with monkeys that were taught how to use “money” to “purchase” food, and why walking while drunk can be even more dangerous than driving while drunk.
Regarding the worlds of investment advice and financial planning, these were some of the top insights from the economic iconoclast:
• Extra-long client questionnaires really ask the same question over and over. It's all about risk, and how clients might endure severe volatility, he said.
• Hypothetical risk tolerance questions don't matter much when markets really crash. Prospects might tell advisors they could endure a 30% selloff over three years, Dubner said, but if it really happened, many would act utterly differently.
• Investors often are confused by the difference between risk and uncertainty. Many investors take too much risk or not enough because they equate these two factors.
• Never underestimate the power of free things as an incentive. The power of free is huge and will drive even wealthy people to act in unexpected ways.
• "The single greatest ROI in the history of the world is education.” Aside from creating countless opportunities, Dubner said it’s the reason there is a thriving business for phony academic credentials.