Epistemological Resources and thinking like a money expert

Welcome to Part II of the series I’m calling “Posts that make me look smart.” Or, maybe we should call it “Posts that teach you fancy words that can help you look smart at a party.” We’re going to talk about Epistemological Resources and how a money expert uses them differently from your sucky money self.

Now, imagine yourself dropping the term Epistemological Resources at your next dinner party. Everyone will think you’re some kind of brainy-pants. Or a self-important asshole. Either way, they’ll think your something.

Previously, we looked at the smart-sounding concept of disequillibrium and how we, as humans, go about the process of learning new, more complicated stuff. In that post, I explained why you suck at money and the cognitive science that points in the direction of how to stop sucking at money.

Today, we’ll look at the equally smart sounding idea of epistemological resources and how a money expert cognitively approaches ideas in a way that is fundamentally different from how you approach them.

Specifically, I’m going to tell you about the approaches people take towards what they “know” and the processes people go through to create new knowledge for themselves. We’ll do this by looking at the research behind how experts solve problems and how “novices” solve problems.

And, since this is Beards & Money, we’ll link these concepts to money and completely disregard the entire “beards” thing. If we’re being honest, blogging about beards is hella boring while money is hella exciting.

What is Epistemology?

The Scottish philosopher James Frederick Ferrier coined the term “epistemology” in 1854 as a descriptor for theories of knowledge. The word itself literally means “knowledge word” in Greek. So, you know, knowledge in one friggin’ word.

As a branch of philosophy, epistemology is the study of the nature of knowledge and how we go about acquiring knowledge.

We have to be careful here, because this doesn’t describe how we learn, which was the subject of my last post on Piaget’s Theory of Cognitive Development. Epistemology is more fundamental.

If you are discussing epistemology, you’re talking about what fundamentally constitutes knowledge or truths, and what processes are legitimate for determining truth. You’re also probably in a dorm room really, really high.

Epistemology deals with the nature of truth, belief, and justification. All of these will be important for our little money discussion to follow, but justification is of particularly importance for us. So you know, we call a specific justification for a belief a warrant.

What is truth? Why do we believe our knowledge to be true? And, what warrants do we use as justifications for that belief. Welcome to the world of Epistemology.

When it comes to money, we have certain knowledge we hold about the subject. We use this knowledge to develop a system of belief about the nature of money, we approach new money issues by using this system, and we have certain justifications we have developed for supporting the whole shebang.

As one example, we can often make justifications based on a “knowledge as propagated stuff” epistemological resource. In this case, we may justify our decision to front-load our 401k because The Mad Fientist said it was a good idea. Or, we sell our car and start riding a bike because we don’t want Mr. Money Mustache to call us a clown.

Epistemological Resources

New research in epistemology is starting to demonstrate that we rarely hold a well-defined, rigid, and context-independent epistemology. Pretty much no one goes around thinking that all knowledge is just stuff we get from “experts.”

Even little kids know this.

You: What’s your doll’s name?
Kid: Madam Grumpy Pants!
You: How do you know that?
Kid: I made it up, you dumbass!

That’s knowledge as free creation, a different epistemological resource. Later on that same child will argue with their sibling about how they know something: “because Mommy said so!” That’s knowledge as propagated stuff.

What we’re beginning to learn when we work with students, is that people draw upon these so-called epistemological resources. They have many different views about the nature of knowledge and how it’s obtained, and they draw upon those various views in different ways for different contexts.

Within my field of science education, we know that students perceive the nature of scientific knowledge in many different ways. Science as a set of facts to be learned from an expert. Science as constructed from a rigid system. Science as fixed. Science as flexible. Science as objective. Science as relative to stuff like culture.

Each of these is a way to gain knowledge, and as silly as it seems in some cases, a valid way to gain knowledge.

Let’s go back to your Mad Fientist and Mr. Money Mustache fetish. The Mad Fientist is now financially independent, and Mr. Money Mustache retired at 30 years old. Let’s say you found this out and you wanted to know how they did it.

There’s a couple of approaches you could take. One person could assume financial badassity is propagated stuff. These guys obviously have a bunch, so I’m going to listen to what they say. Amen.

Someone else may be skeptical, because to them knowledge is tentative, and one man’s road to success could be another woman’s road to ruin. These folks better convince you, damn it, using some sort of persuasion system you believe in, like logic or math or the Bible or whatever.

Both people can come to exactly the same conclusion, by the way. Both people could decide to front-load their 401ks and start riding a bike.

Also, both people could still be complete money dumbasses that could fail horribly when it comes to the next money question. We’ll learn why in a bit.

Now … the new stuff with respect to how people go about their gobbling up of knowledge is that no one really sticks to one resource all the time for every context. This is what we’re learning in science education.

The biology major in college may be working within a research lab where they are generating brand new knowledge daily through the scientific process. We can interview that student, and they will clearly demonstrate a very sophisticated view of science, the relative value of evidence, how scientists convince themselves about new knowledge, etc. Expert-like views.

Put that same student in a physics class, and their entire view of science will change. All of the sudden, science is an existing body of knowledge to be learned from an expert. They can remain stuck in this more novice view throughout the entire course.

There are brilliant scientists in the world that just follow whatever Yahoo Money seems to be saying when it comes to personal finances, when they are thinking about personal finance at all.

Experts don’t solve problems like you think they do

How does a money expert use epistemological resources and how does a money dumbass do it? That’s what this whole boring post it supposed to be about, right?

It all comes down to problems and how we solve them. And I don’t mean math problems, but actual problems, like how will I save $200 for a doctor’s visit, or how do I go about fixing my radiator on my car for the least amount of money?

In science education, our whole goal is to take novice students and teach them to begin working like experts. To do this well we have to know how both the novice and the expert go about working their craft.

As one example, we’ve studied how students solve physics problems and we’ve studied how professional physicists do it. The experts are the interesting case.

If you have ever been in a physics class, you might be surprised how experts solve problems in reality, because the way problems are typically “solved” in front of students is nothing like how we solve them in reality before the class starts.

In class, a physics problem is solved in a very orderly and structured way. The steps transition smoothly, the logic is laid out clearly, and the whole process from start to finish is one continual flow.

But experts don’t actually solve problems like that. That physics professor went through an entirely different problem solving process before the class began. I guarantee there is a waste basket full of paper with false starts, wrong directions, poor choices of approach, etc.

Mr. Money Mustache didn’t just sit down one day in his early 20’s and say “you know what, I’m going to retire at 30 and this is the full plan for doing so.” Sure, it seems like that might be what happened from the way he presents the solution to us money idiots, but it ain’t how he solved the problem himself.

Us experts at stuff usually give you novices the shiny polished version of solutions.

I’ve actually tried a few times to solve problems in real time in front of students. It went horribly, because the students just assumed I didn’t know what the fuck I was doing and I lost all “credibility” to them, and therefore my “expert” status in their eyes. Novices think experts just know how to solve problems, or that they should be able to “see” the solution from start to finish from the beginning.

If Mr. Money Mustache really did spend $256,000 last year like he claimed on April Fool’s Day, then many of his readers would go ape shit. In fact, some go ape shit about little things like how he accounts for his business spending, and why he travels all over the world if he’s so Mustachian. Don’t believe me? Look at his forums.

(Cults are curious things, especially money cults. I’ll write more about that another time.)

But, even the great MMM will fuck up in real time. You need to stop thinking experts don’t fuck up, because otherwise you will make an expert your guru, build a belief system around their polished teachings, and go to absolute shit when they “fail” to meet up to your expectations of all-seeing creatures of amaze-balls gloriousness.

Framing a problem

Anyway, back to experts solving problems. Here is how they really do it.

An expert looks at a problem from many different framings. A novice gets stuck in one frameing.

The education theorists Thomas Bing and Edward Redish from the University of Maryland describe framings as follows:

Framing is the (often subconscious) choice the
mind makes regarding ‘What kind of activity is going on here?’

Let’s say the physics problem you need to solve is determining the gravitational constant, as an example. One person may frame this as a simple fact-finding mission. Some information might be best looked up in a reference, because in some context, knowledge as stuff is an appropriate resource.

Someone else might consider devising an experiment to measure the gravitational constant. If so, then they are framing the simple task differently than the person that suggests looking it up.

What I want to point out is that both framings might lead to a positive result. And more importantly, an expert isn’t defined by their ability to frame the problem “correctly.”

Both framings are equally “correct” in this sense. Their both valid approaches to the problem of determining the gravitational constant.

Let’s say you’re trying to figure out how much money you should spend on a car. You could frame this problem within a zero-based budget framework. You determine how much income you have coming in, how much you have to “dispose” of while keeping some level of acceptable savings rate, and determine an affordable monthly payment based on that. Back-calculate with a reasonable interest rate to determine the purchase price you can “afford.”

Or, you read The Financial Samurai and have just decided that Sam’s a smart guy, knows what he’s talking about, and you just use his 1/10th of annual income rule to determine how much you can spend.

You might arrive at the same answer using both methods. In one case, the problem is being framed as an analytical problem, and in the other case it is being framed as a problem requiring expert advise.

There is nothing inherently wrong with either framing.

You can have a case where a particular framing is inappropriate. It won’t lead to a correct answer (if the problem has a correct answer.)

Money experts use multiple epistemological resources

What separates the expert from the novice is that the expert sees a problem and recognizes multiple ways to frame the problem. They draw on multiple epistemological resources, and they effortlessly shift from one framing to another in an attempt to solve a problem.

We actually don’t classify experts as “people that get shit right the most.” Real experts are classified by their approach to problems.

Not only do experts actually work through multiple framings drawing upon multiple epistemological resources, but they also know that they’re doing it.

Basically, experts are metacognitively more aware than you. They know what they’re thinking, why they’re thinking that way, and can see other ways of thinking.

An expert knows the argument against some idea they hold better than someone who thinks their idea is stupid. The expert sees different ways of framing the problem, sees different approaches to solving the problem, understands the justifications (warrants) for different ways of solving the problem, and can articulate to themselves why they hold the particular warrant they do, and not hold others.

An expert can frame a problem in one way, start to solve the problem based on that framing, recognize the framing is not valid or optimal, and then shift framing.

You are no money expert, because you think like a novice

Novices typically get stuck in one type of framing and can’t see how others might frame the problem differently.

One study in problem solving asked students to solve a simple problem involving trains. To come to a correct solution, the students had to recognize and frame the problem as dynamic, with multiple objects moving in space at one time.

So-called experts not only arrived at the correct answer because they framed the problem correctly, but in interviews, they were also able to describe how other students might frame the problem, why they might get different answers, and describe why they thought the alternative framing was valid.

In fact, in interviews watching the experts solve the problem in real-time, many started with the incorrect “static” framing and then shifted when they recognized some of the problems with the approach.

Novice problem solvers stayed within the same static frame, and when asked in the interviews about why other students might arrive at a different answer, they had no idea. They couldn’t see how someone would frame the problem any differently.

Some novices got the right answer because they used the right framing. But they still failed to see how someone might approach the problem from a different framing. That’s why they were still novices even though they got the correct answer.

Dave Ramsey is a fucking idiot

Here’s an example: Dave Ramsey says car leasing is 100% stupid. He bases his argument at that link on research showing that 80% of millionaires have never leased a vehicle.

What’s his resource? Knowledge as the collective wisdom of experts.

What’s his framing? This is a problem that can be solved by looking at what rich people do, on average.

Call his show, give him some specific situation where maybe leasing might be possibly a better idea, and sit back and listen. Dave Ramsey will NOT change his framing, I guarantee.

Call his show and ask whether you should buy a house or rent. Same framing. Same resources used.

Let’s pretend to be experts. What might be another resource we can use? How might we frame the problem differently?

We could always calculate the cost of leasing several vehicles over 10 years. Then, we could calculate the costs of buying a car with cash and maintaining it over 10 years.

Do we include opportunity costs on the upfront cash? How do we estimate the maintenance on the paid-for car? How do we choose to monetize the risk associated with a vehicle 5 years out of warranty? What kind of mileage are we putting on the car per year? Will that have an effect on the 10-year maintenance schedule, and therefore the cost of buying? What are the tax implications of buying vs. leasing?

All of the sudden, we see a more sophisticated approach to the problem, and holy shit we have to solve new little sub-problems, all of which might depend on some very specific context related to our actual needs.

In some cases, the simpler approach Dave Ramsey takes in framing the problem might be appropriate. If you don’t have a fleet of 1,500 vehicles, then you can probably just go ahead and pay cash for the damn car and not spend too much time on the problem.

If you’re the average individual asking about your personal car, then the math approach might lead you to the same answer, anyway.

However, if we’re talking about a major big-dollar financial decision that could affect a giant fleet, which approach would you rather your employees take in solving that particular problem?

Once again, being an expert-like problem solver in math AND in money isn’t necessarily related to the answers at which you arrive, but in your ability to see and understand as many approaches and warrants as is possible.

You wanna be a money expert, stop repeating bromide bullshit from Dave Ramsey, even when he IS right.

How to start “seeing” other options like a money expert

This is where I should start telling you how to start seeing all the different framings so that you can learn to be a money expert.

However, we really have no fucking clue how to teach that!

I’d love to have some good, science-based answers to give you, but we’re working this stuff out in science education as you read this.

The best I can tell you is that it seems just knowing how an expert approaches problems is a good step in the right direction.

Remember, I said experts are metacognitively more sophisticated than you. What that means is that they are very good at thinking about how they are thinking. We know that if we can get science students to start thinking about their thinking more, then they usually get better at solving problems, too. Maybe it works with money.

So, first recognize that there are multiple ways to frame a money problem and that there are multiple ways to solve a money problem. Recognize that the solution process is almost always messy, even to experts. Also, context matters so don’t get stuck in particular epistemological frames.

Basically, when you’re reading the blog post of an “expert,” pick apart their resource use and framing. Think to yourself: “How are they approaching this question? How might someone approach it differently?”

That’s what a money expert thinks when they read personal finance blogs. That’s what financial kung-fu masters do when they listen to Suze Orman.

With that said, though, be careful of The Rationalization. Use a process social scientists call “triangulation.” Approach the question from multiple directions, and when a bunch of approaches start to converge on a similar result, that’s probably the truth.

More on that another time.

Your money, your problems. Don’t be a dumbass.

Read my post on Cognitive Bias and automatic savings, then read the great post on a theory of cognitive development and why you suck at money.

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Epistemological Resources and thinking like a money expert

3 thoughts on “Epistemological Resources and thinking like a money expert

  1. Well damn. You’re making me second guess all off my financial knowledge. errrr, assumptions. I’m telling myself that’s a good thing though. (That is a good thing, right?)

    My approach to personal finance has been to handle my Financial Independence problem just like I handle a project at work: define what success looks like (FI = investment income > expenses), then I work backwards from there, identifying all of the milestones I can see that are necessary for me to reach in order to hit my goal. What I’m left with is basically a very detailed to-do list that is going to help me “retire” w/in the next 10 years. I did a quick write up on it here: http://goo.gl/CGOAJF

    A problem that I now see is that many of the milestones and items in my plan are based on “knowledge as propagated stuff.” Scary.

    What if I’m reading the blogs and books of idiots (Beards & Money excluded)? Time to step back and think about how I’m thinking.

    I also need to re-think how I’m writing on my blog. I’m going to re-read my posts; I have a hunch I’m acting like the Physics professor that has his shit together in front of the class, but what I’m actually doing is trying to solve all of these money issues in real-time, blogging about it as I go. I need to be more up front about that in my writing.

    Thanks again for another killer post!

  2. Dr. Beard says:

    As an expert, you should just trust me when I say that you shouldn’t just trust experts.

    I can guess you’re probably an engineer or some sort of project manager. Gantt charts for personal finance? Not a bad idea and maybe worthy of a blog post some day.

    With respect to “teaching” about money through real-time problem solving, we have to be very careful about that in science. Because students hold very strong views about what an expert is expected to do, when the expert goes against that conception, the teacher can lose “expert status” in the student’s mind. Basically, the student will from that point forward not buy-in to the teaching methods and will therefore learn nothing, no matter how awesome the teacher really is.

    There is a framework we use in science education called “Cognitive Apprenticeship,” but it is fraught with exactly those types of buy-in issues. The successful implementation pretty much requires a receptive student.

  3. I do love the stuff on Dave Ramsey. My biggest problem with Ramsey is that he cites research for becoming a millionaire or whatever, but ignores others studies that contradict his views. For example, he constantly promotes growth funds, a lot of American funds and he basically says that Index Fund investing is stupid even though 80% of index fund investing beats most mutual funds. I actually agree with him on car leasing in general, but I can’t stand him or others who won’t learn new things and change course, particularly when they don’t look at the research. I guess that is the privilege of being an expert, but I am an expert on politics, not money.
    Jason recently posted…Financial Tip Friday: Trouble Saving? Your Home Is Forced SavingsMy Profile

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