In a wide-ranging and challenging speech, the man credited with popularizing the study of how human behavior affects economic decision-making warned advisers that, while their job is to project confidence, an overconfidence in their ability to predict the markets could hurt their clients.
"By and large having few ideas is better,” said Mr. Kahneman, an eminent Princeton University psychologist.
Mr. Kahneman said the role of advisers is less about portfolio positioning than understanding the frequently irrational biases of their clients. In his view, behavioral research shows that clients have an exaggerated bias against losses as well as a hindsight bias that gives them the false sense that the future is predictable.
“You live in a world in which experience is possible,” he said of financial markets. “Expertise that supports intuition about the future — that's not possible."
If you’re a financial advisor and you present yourself to clients as someone who can predict future events, you’re going to lose those clients soon enough.
And it will be well-deserved.