1, #7 - Knowledge is not enough
1, #7 - Knowledge is not enough
On the Information-Action Fallacy — Estimated Read Time: 39 seconds.
We tend to believe that, given enough information, someone who is doing something wrong will automatically change their behavior. Unfortunately, this isn’t true. But the idea is common enough to have a specific name: the Information-Action Fallacy. This concept shows up a lot in personal finance, and I was shocked to discover a few years ago that one meta-analysis of 200 studies found that financial literacy programs account for only 0.1% of the variance in behavior. Yikes! So, what’s the alternative? I’ve found that behavioral economics is useful in addressing this exact issue—the field specifically diverges from traditional economics in rejecting the latter’s assumption that humans are perfectly rational. Information alone might compel a totally rational person, but in our imperfect reality, using the principles of behavior design is a much better way to change how we act.
Inspired by: BJ Fogg (who coined the term “behavior design” and whose amazing book, Tiny Habits, introduced me to the term “info-action fallacy”) and Martha Brown Menard, who directed me to the paper (linked above) that confirmed the inefficacy of financial literacy for me.