Scott H Young

Why do Engineers Think They’ll Be Good at Picking Stocks?

I’ve met a lot of engineers who have become fascinated with investing in the stock market. Except it’s usually not straightforward index investing (which is probably the main thing non-professionals should be investing in) but something convoluted involving a lot of math, options and stock picking.

Anyone who studies finance or economics probably understands why this is a bad idea. Stock prices may not be perfect, but they at least approximate their true value. Whenever someone realizes a stock is underpriced, they try to buy it, thus bidding up the price.

Why do I have so many friends in STEM-related field that ignore this basic fact? There are a few explanations, but my favorite is this: engineering rewards intelligence. A smart engineer, who understands the system, can do a lot more than one who doesn’t. Because of this, engineers naturally develop the assumption that the more they learn about a system, the better their results will be.

Economists, on the other hand, tend to form a different assumption about reality. They see how millions of different participants all influence stock prices and therefore see how it becomes increasingly difficult to beat the market reliably. A “dumb” strategy of simple index investing may outperform one that requires more intelligence.

Do More Logicians Believe in God than Biologists?

If you’ll allow me to continue down the rabbit hole of anecdotal evidence and wild speculation, here’s another: mathematicians who study logic are more likely to believe in God than biologists do.

The famous mathematician and logician Kurt Gödel was a convinced theist. Same for George Cantor. Richard Dawkins is perhaps more famous now for his atheism than his work in evolutionary biology. Charles Darwin’s beliefs about God are less clear, but his views definitely leaned more in that direction than his peers of the time.

Why the difference?

I think it, again, comes down to the intuitions about reality you pick up from studying one aspect of it. Logicians deal with infinities and paradoxes, where things may be fundamentally unknowable and mysterious. Biologists see how fantastical living systems work mechanically and chemically, undermining a belief in the supernatural.

Assumptions and Mental Tools

Engineers think they can pick stocks because they’re used to looking at systems that, with intelligence and correct understanding, can be manipulated to their advantage. Economists think they can’t pick stocks because the very act of manipulating the system self-corrects.

Logicians believe in God because they see mystery in banal symbols. Biologists don’t because they see banal chemistry and physics in the mysteries of life.

Learning about a field creates unstated assumptions about how the world works. These assumptions are tools, when applied correctly. But they can also break down when misapplied.

I see two ways to combat this:

First, learn more from other fields, not related to your own. Even if you don’t become an expert, trying to understand why most the people across certain disciplines have eerily similar world views will help you understand what assumptions learning in that field tends to train.

Second, respect the assumptions of people closer to the topic at hand, even if their field is less prestigious than yours.


Posted in October, 2014 14 Comments »