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Saturday, November 30, 2013

Consilience


Most people are familiar with the concept of consilience, even if they don't know the term itself.  Consilience is the idea that there is higher confidence in a given conclusion when it's supported by several different methods.  The more independent methods that agree, the stronger the conclusion.

This principle is sometimes called a "convergence of evidence", and it's a common theme in certain disciplines, such as science and history.  We also use the idea of consilience in our everyday lives; we just don't often reflect upon it or use it systematically.  Yet hardly a day goes by when we don't make personal decisions based upon this logic.

Weak Conclusions

One of the reasons that personal finance convictions are usually low is because we often rely on too few methods.  We appraise the value of our house with one technique.  We read one comprehensive book on taxes.  We approach debt in the way that the TV guru told us.  We invest with the strategy that some magazine article assured us was the best.

Many of these conclusions may indeed be accurate, but our confidence will still be low.  At some point, we will eventually have doubts about the individual evidence and methods we used to draw our conclusions.  How do we know the TV guru really knows what he/she is talking about? Why did a smart friend tell us that tax book was rubbish?  How do we know the investing article didn't make false assumptions?  Is everyone just telling me to budget because they heard everyone else telling them to budget?  And how do we know that we can count on anything that an appraisal says about value?  We have doubt, doubt, doubt from weak conclusions.

Strong Conclusions

To increase confidence, we must actively seek out alternate methods and evidence.  When doing so, it's especially important to find independent methods.  In other words, we're looking for the same conclusion with a different rationale.  For example, suppose we wish to measure the dimensions of a room for painting or flooring.  Simply asking three people to measure the room is somewhat helpful, but the evidence is not completely independent.  The same measuring tape that is used by all may be inaccurate (or confusing) or people may tend to make the same measuring mistakes (e.g. excluding the baseboard).  On the other hand, suppose we have three totally different measurements: the blueprint of the house, a measurement with a tape measure, and a reading with a laser distance meter.  If all three agree, the evidence is very strong.  The probability is very, very low that each independent measurement is in agreement with the others and also wrong.

During the last few months, I've been trying to navigate through some very long range planning of my finances and my career.  The uncertainty involved in some of these decisions is very high.  I have personally found it immensely helpful to utilize consilience in making these decisions.  When my confidence is low, I attempt to come at the problem from a completely different angle.  Usually the results will not agree, confirming my suspicions about the original conclusion.  Only when I arrive at the same conclusion from quite different methods do I have the confidence to proceed.