I want to introduce a new concept called the Type III ignorance. The Type III is the most deadly form of ignorance. There is no known cure for it. According to Wilfred’s Theory of Ignorance, the Type III ignorance is defined as a person who thinks he already know the subject matter but what he actually knows is wrong. This is how a Type III occurs in real life (relating to financial matters):

Person X wants to do research to upgrade his Type II ignorance to Type I. So he surf the web and talk to “free” financial advisers. He reads the forum and other people blogs etc. Because people sharing in the forum will never discuss their full context of what they share, about 80% (example only) of what is shared is correct but the other 20% when interpreted in the context of Person X situation becomes wrong. Hence there is 20% error rate. The issue is that this error rate is a Type II error too. Person X thinks that he should talk to a few “free” advisers to increase his chances of getting it correct – or least reduces his Type II and increase his Type I. So he talked to few advisers. But no adviser is to so silly to give free advice. Each lead that is generated is a chance to sell products. Hence each adviser probably will give 80% correct advice and the remaining 20% error rate because that 20% is required to subtly “push” the client to buy the silly product. My theory is as follows: Since each data point has only 80% “correct” advice, after speaking to say 4 persons/forum/blogs, the information gathered is compounded by 0.80^4 = 40.96%. The remaining 59% is a Type III error! Why? This has to do with overconfidence bias. The client thinks that increasing his data points reduces his error rate but in reality it actually increases his error rate. As the client thinks he got all the information correct, he has a false sense of security thinking that all he has is correct when 59% is wrong.

Such Type III ignorance is extremely dangerous. It gives the client a very false sense of security. I encounter this so many times. It is very hard to tell the client he is wrong because of ego problem – how could countless hours of research yield 59% in wrong information? The root cause of the problem was that the data sampled through research was biased in the first place. Talk to any statistician and they will tell you that if the sample data was defective (or not randomly chosen), the results of the research will yield incorrect results. As the saying goes, rubbish in and rubbish out.

Sometime my clients told me that they have already done so much research. They also tell me that they cannot afford my fees to help them. I discovered that they have spent unreasonable amount of time to do their own planning wasting their own precious resources and worst of all already paid expensive school fees through outrageous commissions and lost of hundred of thousands of dollars and lost of insurability. The fact they appear on my office is due to the fact that they still are not convinced that what they already researched is correct because they suspect they carry Type II ignorant. But later on I found they were carrying Type III ignorance too. So what is the cure for Type III ignorance? There is no cure for it.