Property Investment, Effort Shock, and the Dunning-Kruger Effect

Not to be confused with the Freddy-Kruger Effect, which is much scarier.

Freddy Kreuger.You know how everyone always laughs at teenagers because they think they know everything? It turns out that there’s a great reason for that — it’s called the Dunning-Kruger effect, and it essentially says “people who don’t know how complex a field is tend to vastly overestimate their ability to perform well in that field.”  Teenagers rather predictably have very little idea of how complex everything in life actually is, so they tend to vastly overestimate their ability to perform well at almost everything.

 

Of course, this effect hardly vanishes once you hit 20 — in fact, while adults tend to be very aware of how complex some things are, they tend to (still) be very unaware of how complex everything (else) in life actually is. There are obvious exceptions — we all know that brain surgery, rocket science, and anything to do with lawyers are stupidly complicated. But generally speaking, it’s super-easy to get on the Internet, read twelve or twenty articles on How to Do the Thing, and think that you’re now better informed than most everyone about The Thing and thus can do The Thing better than most of them — because you’ve massively underestimated just how complex The Thing is.

Effort Shock

This is ridiculously common in the world of property investment.  Which isn’t entirely a bad thing — without Dunning-Kruger, we would have a lot fewer property investors in the first place! — until you run smack-dab into the second factor we’re talking about today: Effort shock. To quote the originator of the concept (Cracked.com editor David Wong),

We have a vague idea in our head of the “price” of certain accomplishments, how difficult it should be to get a degree, or succeed at a job, or stay in shape, or raise a kid, or build a house. And that vague idea is almost always catastrophically wrong. Accomplishing worthwhile things isn’t just a little harder than people think; it’s 10 or 20 times harder.

 

This is why people who aren’t a good ‘X’ have no concept whatsoever of the amount of effort it takes to be a good ‘X’, where ‘X’ can be any of a long list of things including:

  • Parents
  • Professional sports players
  • Actors
  • College graduates
  • Presidents
  • Computer programmers
  • And yes, property investors.

So you end up in a situation where people who don’t understand how complex property investment is will get into it anyway, and then end up completely stunned by the sheer amount of effort it takes to succeed at property investment.

So, What? We Should Just Stop Investing in Property, Then?

Of course not! But consider this: every industry that is famously and ridiculously complex has entire industries that have sprung up around helping people from that difficult industry. Doctors have the nursing industry, lawyers have the paralegal industry, rocket scientists have aerospace engineers, and property investors have property managers.

Yes, the job of a property manager is to dramatically reduce the effort shock inherent in being a property investor. The best property managers will also help with the Dunning-Kruger effect by offering education, consultation, and other resources to help property investors understand and overcome their ignorance.

Posted in: 1. Property Owner Blog Posts, Investing Strategy

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