Health and Wealth should not be Outsourced

In life, we specialize on the narrow set of skills required to perform our jobs, and outsource nearly everything else. We don’t try to make our own clothes, or grow our own food. We buy goods and services, and concentrate on our jobs. And most of the time, this works out great. Competition keeps everyone honest, and everyone reaps the benefits of specialization.

But in the two most important spheres of life, health and wealth, outsourcing fails to work its magic. This is due mainly to bad incentives and informational barriers. Doctors make more money when their patients fall sick, not when they remain healthy. Retail investment advisors (RIAs) appear to be working harder when they adjust their clients’ portfolios constantly, and not when they construct a low-turnover portfolio which minimizes fees. While most doctors and RIAs are honest and do provide good advice on your physical and financial health, they are unlikely to spend a lot of time on this, and will not push as hard as they probably should. Matters are made worse by the complexity of the subjects involved. Health and finance are enormously difficult topics to grasp; conflicting advice are commonplace, luck plays a large role, and the correct advice often depends crucially on one’s personal circumstances. As a result, it is difficult to tell apart good advisers from bad ones. The people who most require help to make sound medical and financial decisions are also unfortunately most unlikely to recognize a good doctor or RIA when they see one. So people turn to their friends they trust for recommendations, effectively assuming that their friends are more capable than them. This system benefits medical and financial providers with the best social skills, and not those with the best expertise. Hence, malpractice suits are commonplace, and people get taken in by advisors backed by “trustworthy” institutions.

Health and wealth are too important to outsource, especially when the outsourcing process is so dysfunctional. The solution to this problem is through the difficult path of self-education. Read everything about health and finance that you can get your hands on, and think things through for yourself. See what makes sense to you. Then, put your hard-earned knowledge to work for yourself. No one is as vested in your health and your wealth as yourself.