Planning Advice From Nobel Laureate Kenneth Arrow

The vast of majority of Financial Planners, Financial Advisors, Investment Advisers, and anyone else who gives advice on an individual’s finances have assumed the role of either the General, the weather forecaster, or both. As a General in the investment business, I receive one forecast after another from multiple agents, none of whom are asking to be relieved of duty. In fact, they want to convince me with data, history, and marketing that their forecast can be relied upon without questions. As a General, I too know that most of these are no good!

We do use the power of technology to improve efficiency and reduce the amount of time crunching numbers. However, we also recognize that information, by itself, is not very valuable until it is filtered for errors and integrated into some comprehensible format. Even then, the knowledge gained from the information must be usable and implementable. 

I am going to end with one more story about Dr. Arrow.  This story was shared by Larry Summers, the 71st United States Secretary of the Treasury. Last year, Dr. Summers gave a commemoration at the Institute for Advanced Studies for his Uncle, Kenneth Arrow. In his address, he said this:

 I remember being in a conversation, with Kenneth and Selma in their kitchen in Cambridge, many years ago. We were discussing annuities. We were having a highly-animated conversation about intemporally separable utility, the nature of the bequest motive, risk aversion, adverse selection and whether purchasing annuities was optimal. A group of economic theorists like those here can more or less imagine all the propositions.  Selma didn’t really find the conversation very interesting, but said, “Well, wait a minute, annuities?, We’re approaching retirement. Do we have a plan?” And Kenneth said, “Oh, I don’t know. Whatever, it will work itself out.  It will work itself out in some reasonable way.”

Dr. Arrow was a humble man who knew that there is no certainty in life, and had deep faith that the future will unfold in unpredictable ways. Whatever happens, things will just be fine.

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Disclosure: Anderson Griggs & Company, Inc., doing business as Anderson Griggs Investments, is a registered investment adviser.  Anderson Griggs only conducts business in states and ...

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Cyrus Smith 2 years ago Member's comment

Thank you Kendall for the very interesting food for thought. Advances in tech have indeed significantly improved efficiency and time required to complete a number crunch. However, information still needs to be parsed appropriately.