Trusting Amateurs

Maybe you saw that amateurs, i.e. those not paid for their financial acumen, outperformed professionals when challenged to predict Apple’s quarterly results.

When it comes to forecasting Apples earnings, amateurs are better than the pros — Engadget

The amateurs did uniformly much better than the professionals.

Coincidentally, I’m reading Clay Shirky’s (@cshirky) Cognitive Surplus, specifically the chapter called “Motive” that compares several instances of group collaboration and examines the reasons behind them and their success.

Shirky says:

Doing something because it interests you makes it a different kind of activity than doing it because you are reaping external reward.

Finally, stating the obvious, “to be an amateur is to do something for the love of it.”

Although I knew this, reading it in this context provides the subtle connotation required to really get what this means.

We tend to think that professionals are better (more skilled, more accurate, etc.) because they are paid. Shirky’s point is that amateurs are better because they are not paid.

“For the love of it” trumps money as an reward.

Thoughts?

Incidentally, I always enjoy Shirky’s writing and speaking, and Cognitive Surplus is no different. He writes books that put a smile on your face and make you hopeful and full of ideas.

Hard to argue with that.

AboutJake

a.k.a.:jkuramot

10 comments

  1. The results were surprising to me.

    Certainly someone with passion can outperform someone who is disinterested, but Apple is a large enough firm that the professionals devoted to covering it spend a significant amount of time, if not all of their time, looking at the company. (My guess: those who cover Apple professionally know more about liver transplants than the average layperson.) And presumably these people have chosen to cover Apple, rather than to cover Wal Mart or whatever, so they’re not necessarily being forced to do this for a living.

    So how could dedicated amateurs outperform dedicated professionals?

    The answer is in the Engadget post – the results are based upon analysis of A SINGLE QUARTER. It’s very dangerous to base stock market truths upon one quarter’s worth of results.

    I don’t know how long financial blogging has been in existence, but before taking Engadget’s advice to “just stop” paying professionals, a more rigorous comparison is in order – at least a year, and possibly as many as five years if the blogging data goes back that far.

  2. Those doing the job “professionally” sometimes have a different goal than those doing it for the love. For example, I saw a program on financial stuff recently and the stats (insert caveats) they showed suggested most investments that track the markets do much better than those controlled by fund managers, yet those controlled by fund managers have bigger charges. Why the difference in performance? Many fund managers pick investments that give them the biggest kick-backs, rather than the ones that give you the best return. The “professional” is all about making money for themselves, which includes investment returns plus kickbacks. The amateur is only focusing on investment returns. Different motivation, different result. 🙂

    Cheers

    Tim…

  3. I’m not sure that financial analysts choose to cover companies. I think they’re assigned based on experience, much like a lot of jobs. They may enjoy covering technology, but I don’t think it’s choice.

    Besides, the real point isn’t enjoyment; it’s the money. Even if the pros and amateurs all enjoy covering Apple, Shirky argues that bc the amateurs do it *only* for the enjoyment, the intrinsic outperforms the extrinsic reward.

    You are writing off the money as incidental, but that’s not the case. The ultimate test would be to compare the results of the same person when paid and not paid. Edward Deci did this in 1970, which Shirky cites. HIs conclusion is that “doing something that interests you makes it a different kind of activity than doing it because you are reaping an external reward.”

    I also believe the cult of the amateur is tied to generation. People of our generation and early have been conditioned to believe that experts/pros are always better. That has turned out to be a mixed bag in practice; sometimes amateurs are just as good if not better. This has always been the case, but the internet has provided a medium for showcasing the amateur.

  4. Sure, see my comment to John below for the differences in reward. However, even with the same goal, in this case accuracy, the results would be tainted by the money involved. Deci’s study produced some very interesting results when money was introduced.

  5. There’s another article about being being overly professional (I got pointed to that from my ex-boss’s blog at http://halfcooked.com/blog/2010/01/28/professionalism/)

    http://moreintelligentlife.com/content/ed-smith/are-we-too-professional
    [Luiz Felipe Scolari, the football coach who led Brazil to the 2002 World Cup, summed up what we might call the Ramprakash paradox. “My priority is to ensure that players feel more amateur than professional,”]
    [More controversially, Kay (former director of the Institute for Fiscal Studies) also believes that profit is best sought obliquely rather than as the primary goal of business.]

    Professionalism is linked to processes, preferably repeatable processes leading to measurable, predictable results. I suspect professionalism, especially in financial services, tends towards more conservative estimates. Promise 10 and deliver 12 and your customer won’t complain. Promise 15 and deliver 12 and it is a different issue.

  6. I suppose I should have clarified more in the post, but the actual results don’t matter to me. It’s the bit about amateurs doing a better job. I suspect you’re right that the pros were on the conservative side, which makes sense.

    Logically, a poor quarter for Apple would see the opposite results.

    Or would it? Either way, the post you linked is interesting. I also thought of sports in this context, although athletic gifts outweigh love of sport regardless of monetary compensation.

    Still, sports were a lot more fun to watch when they were populated with people who loved the game and just happened to be getting paid.

  7. Some amateurs are better, most are not. Just looking at the top skews the results.

    This has long been obvious in the classic auto field, which is highly susceptible to hype. There are a few amateurs who really love their cars, and have the time, skill and money – sometimes way too much money – to do a fantastic restoration. Then there are professionals who do the same thing for other peoples money. There there are “professionals” who do a crappy job for other peoples money. They’re all used car salesmen. But you watch the high-end auctions, and the appraisers who are out there use terms like “a really good amateur restoration,” since they know what to look for. Sometimes you can find a bargain where you pay less than a pro restoration job would cost, but in the end, you’re still buying old cars.

    In the Oracle cyberspace, you can see a lot of amateur advice that just doesn’t stand up, and it can just overwhelm correct advice from old pros as all the amateurs quote each other.

    I think amateurs outperforming pros is not sustainable, no matter the subject.

  8. I don’t think cars fit the scenario Shirky references here bc the costly equipment selects out such a large percentage of amateurs. The point is dual-pronged: 1) the internet has provided both medium and means for amateurs and 2) amateurs frequently do a better job than pros given relative equality of medium and means.

    Oracle advice is a closer fit, but that’s a really wide swath of potential content varying infinitely between configurations, environments, versions. It’s harder to define an amateur too bc Oracle DBAs are all paid. I’ve never met an amateur Oracle DBA.

    I think the point here is that amateurs will not always outperform pros, and likewise pros will not always outperform amateurs.

  9. Yeah, I guess I’m over-stretching the definition of amateur, to include a paid professional doing stuff for free, but not being a good professional to begin with. Amateur DBA’s are called students or developers, you’ve perhaps met some of those. A lot of what they do amateurishly is give bad advice, not because they love DBA work, but because their motivation is the perception that DBA’s are godlike and well respected, and if they act like they know what they are talking about, while just parroting others, they will get more status. Someone on cdos was recently pointing out how frustrating it is to google an oracle error, only to get links to sites where someone just listed out oerr. The internet has provided more of the means to be a bad amateur, lowering the frequency where they do a better job than the pros.

    I do think the car thing does apply though. They just farm out some stuff.

  10. Again, I would argue with that definition of amateur DBA bc the motivations are different. These people don’t teach themselves DB for the love of it; they do it bc it’s an adjunct to their work or school.

    So, yeah, I’d expect shoddy advice. I don’t think this fits Shirky’s definition.

    The problem is as I analyze his definition with help, it seems pretty narrow, and the temptation is to apply it too broadly without enough definition, which I’ve done.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.