Monday, January 11, 2010

Intelligence Is Not the Issue

I have intelligent friends. Most have an undergraduate degree or higher. The ones who don't could earn one without much trouble if they wanted to. They read widely, and I can converse intelligently with them about almost any topic. That's one of the reasons that we connect.

However, I have been surprised recently by a subset of my friends. Conversations with people from this group are generally smooth and fun. I don't know much about Freudian psychoanalysis or Jungian archetypes? No problem, my friend can explain it to me. My friend doesn't understand what a mathematical limit is and why it's important? Not an issue. I can describe the concept and significance in a few minutes. They will understand.

However, the minute that I use words like "call option," or "variable cost" my friend's eyes go blank. I offer to explain. The usual response: "No thanks."

Sunk costs, opportunity cost, options, margins, etc.: these are important concepts! They shape our world! But for some reason, this group of my friends does not care to learn about them. Why?

I don't think it's because the ideas are too complicated. They are quite simple. It might be because the ideas are boring, but I doubt that's the main reason. Everybody has read something for an English Lit or History course that is more boring (and much less useful).

I think it is a gut reaction. We have all felt it. Somebody says a word like "index fund," and we are reminded that we don't understand, even though we know we should. It's the same unpleasant feeling most of us get when we realize we have to do our taxes. We should know this stuff by now, and we're ashamed that we don't. Instead of facing the shame, we shut down.

Shutting down may help in the short run, but it doesn't change things. Business ideas and language are not going away. In fact, they're becoming more important as the world's wealth grows. Avoiding ideas is no longer an option.

The good news is that nobody is born knowing this stuff. I'm at one of the top MBA programs in the world and I learn new language and concepts every day. It is an ongoing process.

This stuff is not that difficult to learn. The toughest part is admitting that you don't know something that you should know, swallowing your pride, and starting to learn.

Note: If you don't believe me that smart people know very little about economics and business, check out this video.