Response to After Credentials

This is a response to After Credentials by Paul Graham

“Let's think about what credentials are for. What they are, functionally, is a way of predicting performance. If you could measure actual performance, you wouldn't need them.

So why did they even evolve? Why haven't we just been measuring actual performance? Think about where credentialism first appeared: in selecting candidates for large organizations. Individual performance is hard to measure in large organizations, and the harder performance is to measure, the more important it is to predict it.”

Credentials are also important when individual performance can be easily measured, but the metric is not available to the person judging. Credentials are important particularly when there is information asymmetry, such that the judge has much more information than the candidate.

We see this if the judge is buying information or advice, and cannot determine its quality after receiving it. Credentials become even more important if the cost of acting on wrong information or advice is very bad, and there are no second tries.

Doctors are often judged and will continually be judged by their credentials even if the legal privileges of MD and DO were abolished. Many people will prefer doctors who are certified by the relevant board, even though that certification does not guarantee good skills. And I doubt anyone, except maybe the most desperate, would accept advice from a “doctor” who did not possess either an MD or DO.

The reason we visit a doctor is that the doctor possesses information about us that we want, or can do procedure/surgery that we want. The patient has no knowledge about the doctor’s abilities. Anecdotal evidence (even our own) can tell us if he is nice or a jerk, but is weak at predicting his skills because there are few data points.

The other doctors and the nurses that he works with can judge his ability, both because they have access to more data points, and because they are more discerning. And there are larger records of the results of his work, but they do not distinguish poor performance because the doctor wasn’t skilled or because he had difficult cases. None of this information is available to the patient.

The importance of credentials is compounded because the stakes, particularly the possibility of loss, are very high. Choosing an unskilled or poorly trained doctor may yield poor results, so people take the safe route and go with the board certified doctor.

We see the same thing, but to a slightly less degree, when searching for a financial planner. Again, the customer does not have as much information and cannot easily judge the advice given by the planner. Many planners will say that they beat the market, or their clients’ portfolios performed very well, and it is difficult to determine the truly talented from the lucky or the bluffing. This time, though, the stakes are slightly smaller: life savings instead of saving life. As a result, credentials are slightly less (but still very) important.