As I read this book, Your Medical Mind, it struck me how similar making medical decisions are to making financial decisions.
For example, a quote from page 82: “… uncertainty pervades much of medical decision making. And in situations where one can not predict the outcome exactly, how the decision is made can be as important as what decision is made.” Their are risks related to medical procedures and benefits as well. I’ve written before in prior blogs about the Probability of the Person (Longevity uncertainty) and the Probability of the Portfolio (Market and economic uncertainty).
How those two probabilities are understood as to risks and benefits is just as important in your financial decision making as it is with your medical decision making. Your behaviors and beliefs, although in this book are from a medical perspective (and there is good insight here I’ll touch on in a minute), the crossover and understanding that your behavior and beliefs in your approach to personal finances are important too. It comes down to patient (client) … in other words, your … choice once you are fully informed. Although there is always uncertainty, decisions are made every day in both medicine and personal finance.
Here’s a quote from page 58 that relates to both professions as an example of the prior paragraph’s point: “As physicians, we’ve both found ourselves at times too quickly telling our patients which treatments we prefer rather than working with them to understand their own thinking. Of course, patients want, and often ask, what their physicians think is best. But that should occur after information is presented in a neutral way.” And I’ll add so that you yourself can make a more informed decision.
Chapter 7 Decision Analysis Meets Reality is a great discussion about how decisions keep changing as circumstances change. Yes, it is a dynamic world in both your medical and financial lives. However, decisions based on emotions often derail the best laid plans. In the area of medicine that may cause confusion for those charged with your care. Decision rules should be discussed and be understood and apparent early on. In your financial lives, it is the same. Markets and economies will change many times over the course of the rest of your lives. There are decision rules that can help you ride out those changes.
The book discusses believers and doubters, maximalists and minimalists as to beliefs and approach to medicine. These apply to you. These apply to your doctor. The key is to understand where each of you come from in these terms and see if you can work together or find someone who’s beliefs match yours. It is the same in the financial industry … understand yourself and understand your adviser … is there a match or not? What is your philosophy? What is that of your adviser?
“If medicine were an exact science, like mathematics, there would be one correct answer for each problem. Your preferences about treatment would be irrelevant to what is “right.” But medicine is an uncertain science.” (page 211) Similarly, financial planning is an inexact science even though formulas are used to arrive at answers, the assumptions used within those formulas change all the time. Thus, so do the answers change over time.
Embracing and understanding risk and return in both your medical life and financial life are similar.