Funny how these things work: In a rant Friday morning, I wrote:

“Regular readers know that I despise political parties, believe partisans suffer brain damage — literally, they have the same cognitive deficits that ardent sports fans suffer. I have trashed both Bush and Obama, but moved to a bullish posture when despite either’s incompetence, they accidentally did something that caused a bullish set of factors to predominate.”

Later that same day, an emailer pointed me to an article at Smart Money looking at a similar phenomenon: Do our cognitive errors affect even our most fundamental perceptions of reality?

A new study in the journal Psychological Science offers compelling evidence that the answer is yes:

“In their paper, “Wishful Seeing,” Emily Balcetis of New York University and David Dunning of Cornell report the results of their research showing that people are not only biased in their reasoning but are actually biased in their visual perception — literally, how they see the world.

In a clever series of experiments, Balcetis and Dunning show that people reliably misperceive how far away an object is based on how much they desire it. That is, more desirable objects appear closer. In one study, the researchers had people sit across the table from a full bottle of water and then had them either eat pretzels or drink water from an eight-ounce glass. After being shown a one-inch line as a reference, the participants were then asked to estimate how many inches separated them from the bottle of water. Consistently, the thirsty participants perceived the water bottle as being closer than did the quenched participants.”

Fascinating stuff.

And it is more proof as to why you don’t want to become infected with bad ideas, poor analysis or bias from various quarters.

>

Sources:
Do You See What I See?
Ryan Sager
SmartMoney.com, January 22, 2010
http://www.smartmoney.com/investing/economy/do-you-see-what-i-see/

Wishful Seeing: More Desired Objects Are Seen as Closer
Emily Balcetis and David Dunning
Psychological Science, 17 December 2009
http://pss.sagepub.com/content/early/2009/12/16/0956797609356283
(DOI: 10.1177/0956797609356283)

Category: Apprenticed Investor, Psychology

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

25 Responses to ““Facts Plain to Any Dispassionate Eye””

  1. Steve Barry says:

    “they accidentally did something that caused a bullish set of factors to predominate.”

    Interesting take on it…I’m sure you realize you will need to take a bearish posture again very soon…perhaps a week ago.

    ~~~

    BR: We are not there yet, but when the data supports that posture, I will adjust. Problem is, many people have been exhorting me to do just that for 6 months now . . .

  2. the bohemian says:

    well- there we have it-

    rock solid science- nobel prize? around the corner

  3. MayorQuimby says:

    Cool post BR.

  4. Ryan Sager says:

    How pervasive is this effect? Pretty pervasive, as a growing body of research — one that dates back to the late 1940s — is starting to make clear.

    In the late 1940s and 1950s, psychologists examined what’s called the New Look approach to perception — the idea that perception is a constructive process heavily influenced by an individual’s desires, needs, and values. In a foundational study on the topic, psychologist Jerome Bruner and Cecile Goodman asked children to estimate the sizes of coins and cardboard circles (by using a contraption to make a circle of light on a cardboard box approximating the sizes of the objects they were being shown). What they found was that the children consistently judged the coins to be larger than the identically sized cardboard circles. This suggested that the kids were being influenced by the monetary value of the coins. Further strengthening this suggestion, kids from poorer backgrounds saw the coins as even bigger than kids from richer backgrounds did — presumably because the poorer kids valued the coins more.

    This perspective fell out of favor for a while, partly because the methodologies used to test it were seen to allow for too many alternate explanations (perhaps, for instance, the poor kids were just less familiar with coin sizes), but it’s had a revival in recent years. Other recent research, for instance, has found that being older, fatigued, or weighed down by a big backpack makes people see hills as steeper and distances to visible landmarks farther away.

    This biased perception isn’t necessarily a bad thing. As an adaptation to our natural environment, in fact, it’s seen as quite advantageous. Seeing a desirable thing, such as food, as closer can help motivate us to go and grab it. Conversely, seeing a distant place as farther away when laden down might help us avoid overexertion.

  5. DaveB says:

    It has always looked like about nine inches to me. Oh NO, am I just biased ?

    ~~~

    BR: Probably . . .

  6. ronald says:

    All optical illusions are based on the same principal.
    IF we def. (short version):
    Information = Data in context
    Context = Organized Data
    Learning is self organization of data, builds context
    Meaning is the augmentation of Data with [my] Data

    Then we can see how dependent we are on memory. Throw in the simulation of myelin sheath, through speed up in an otherwise “constant” many-to-many connected system and we can even simulate what is known as subconsciousness. Or talk before you think, or reaction before inhibition. We all “know” how time can fly by, or time is relative to what we do, why do we expect anything else from our vision system or anything else. All the same math. I would expect that is this example the signal for thirst runs over an increased speed connection and thereby “distorts” any other signals which it is associated with.
    Or it’s not only the “value” of a signal it’s also the speed in which the “value” is delivered which is important.

    Now the more interesting question is. If we learn math, we do, and math is a result of the pre-wiring of the brain to do decomposition. Our math and one-two-many math can be simulated/learned with the same system. But if pre-wiring is a form of learning, through DNA adoptions. Can there be a totally different math?

    Sorry now that I wrote it, a “little” of topic. Hope it’s just food for thought. I didn’t want to destroy any ones believe that they are a rationale.

  7. Steve Barry says:

    “BR: We are not there yet, but when the data supports that posture, I will adjust. Problem is, many people have been exhorting me to do just that for 6 months now . . .”

    I don’t expect you to reveal your data points now…that is your secret sauce. But decade extremes in several indicators (II Bull/bear…II bears…21 day put/call) combined with maybe half the US states on the verge of insolvency, 17% unemployment and option ARM resets coming, indicate a possible abrupt dislocation making it hard to get bearish in time.

  8. DaveB says:

    Are the poor victims in Haiti suffering “less” just because they were poor to start with ?

  9. Dan Duncan says:

    Gimme a break, Ritholtz. You cite this study about “wishful seeing”, you make it a point to let us know how clear your cognitively charged mind is…

    Yet, your site regularly spews forth so much Technical Analysis garbage…

    Just a couple of days ago, you’re showing some RIDICULOUS chart from ChartStore with MACDs and “sideways price action in the S&P”…I mean it was such a joke it’s hard to even repeat the premise: There were two ovals and some absurd hypothesis that twice in the last decade the MACD had similar readings and S&P went sideways, so we might expect more of the same.

    It was an example of the absolute worst kind of equivocating, no-sample sizing, pattern seeking, inkblot Rorschach “see what you want to see” analysis I have ever seen…Seriously, it was pathetic.

    And here you are touting your Herculean Bias Free Mind. Child, Please.

  10. Wow, Dan Duncan, that has to be a new record in terms of how far any reader has ever missed the point of any single post . . . or two posts if you add the chart . . . plus, bonus points for obnoxiousness.

    What is your problem with the MACD chart (here)? I wrote it showed “the quandry traders face when it comes to playing the rally at this late date. Up 70% from the lows, the question is: More consolidation (like 2003), or end of the run?”

    No conclusion, no endorsement of TA, no opinion as to market direction. Indeed, all it did was point to two options without offering an opinion — it was simply a question.

    Helluva reading comprehension score you got there, bub . . .

  11. Dennis says:

    Dan Duncan is a hater — just ignore clowns like that — they are not worth your time.

  12. Dan B says:

    The post referenced above and your “rant” on Friday morning is a continuation of thought that dates before Daniel Kahneman and Amos Tversky’s work on Prospect Theory. It among earlier contributors is the foundation of Behavioral Economics. Both were psychologists but their work resulted in Kahneman receiving the Nobel Prize for Economics in 2002. Unfortunately for Tversky he died before the recognition of their work together.

    Kahneman’s acceptance speech http://nobelprize.org/nobel_prizes/economics/laureates/2002/kahneman-lecture.html notes that people make mistakes, they make emotional decisions. Kahneman says that professionals make mistakes in their chosen field of study, including him. None of us is immune to it, but it certainly appears many are oblivious to it as you correctly point out. They carry these biases into their field without understanding the consequences.

    Gallup hired Kahneman to help them understand the role of emotion in the formation of opinion and decisions. Gallup presented a study published in the Harvard Business Review, which described the role emotion plays in the buying process. The study was of retail consumers in banking. What they found was that the lowest attrition and highest spend (on credit cards) came from emotionally satisfied customers. Rationally satisfied and dissatisfied customers had comparable attrition and spend.

    Dan

    ~~~

    BR: Thanks Dan, appreciate the heads up

  13. Curly says:

    Don’t you find it ironic that in these series of posts, the most rabid complaints have come from political right wingnuts — not investors.

    Its pretty amusing that you don’t want their own stupidity to lose themselves money. I say fuck ‘em — Darwin’s revenge should make all the idiot partisans broke and unable to reproduce.

    Why do you bother putting up with the retards? Just delete and ban them!

  14. heh heh — if only it was that simple.

    Besdies, it creates what the profs call “Teachable moments” — and the inures to everyone elses’ benefit.

  15. the bohemian says:

    Curly has it all figured out!!!!!

    you go curly- damn right wingers-

    should be “broke and unable to reproduce”- no partisan mud slinging there-

    hahahahahahaha-

    better check BR hasn’t blocked your IP address

  16. Darkness says:

    Darwin’s revenge should make all the idiot partisans broke and unable to reproduce.

    Shhhhh. Someone’s gotta do the other side of the trade, dude.

  17. John Purcell says:

    Dan B’s great comment (to a great post) encapsulates one of my most valuable lessons learned, though at times forgotten: self-awareness regarding potential flaws in my thinking and perception was the first step, but lifelong vigilance is mandatory as flawed thinking is an ever-present threat, regardless of my experience/education/wisdom/whatever.

    I was so intrigued with the idea of the role cognitive biases play in decision-making (financial, business, or otherwise), that I chose to move away from Boston to pursue my MBA. Though I had been accepted at top-10 schools in Boston and NYC, I attended a school in Toronto that included Kahneman and Tversky in the prerequisite readings and I made sure to take advantage of the coursework that emphasized the sometimes uncomfortable task of self-examination. I had a particularly fun time in a course named “The Opposable Mind” (named after the professor’s recent book at the time), since watching some MBA candidates struggle with their massive egos was quite entertaining.

    Also, I was glad to see Barry’s political views . Glad to see my libertarian views are shared by someone I respect. If only more disillusioned Americans were attracted to some (not all) of the values on which this country was founded, we could avoid an embarrassing descent into the abyss we are looking into, which the current partisan/ideological environment seems incapable of acknowledging.

    I am sure someone will find something in this comment to trash on; I have prepared by reframing the potential insults as “disconfirming evidence” to my perception of reality…so trash away, you will only be helping me!

  18. the bohemian says:

    “Also, I was glad to see Barry’s political views . Glad to see my libertarian views are shared by someone I respect.”

    that’s a good one- you obviously don’t know what a libertarian is- to start at the most basic level- here’s their website-

    http://www.lp.org/

    I guess it’s fun playing one though

  19. So if this is the way we are hard wired then maybe we can use it to our benefit. I am thinking along the lines of positive self motivation, goal setting etc. Hyping up our desire to want something should get us in the psychological mood to actually go through the muck to get there. I think it is some sort of hard wired survivalist trait.

    Hey, look at that bear, it is going to eat me…….I’m hungry, let’s kill it!

    I think the ability to tap into that and use it would be especially useful in politics. No offense here but I gotta think this is what Hitler was playing on

    Sports would be another key area

  20. I guess it’s fun playing one though

    It’s more fun playing a piano :)

  21. highside says:

    Long ago, 30 years or so, I travelled from University to a soccer match to support my team, Ipswich Town, versus Liverpool in a crucial top of the table clash. I took two entirely neutral friends along for the company. We stood ten yards from the corner of the pitch. With Ipswich losing one nil there was a flurry of activity right beside us, I had a clear view , the ball hit a Liverpool leg and left the pitch, I screamed for a “corner” (for non soccer aficionados this would have provided a significant opportunity for my team). My two friends told me not to be silly it had clearly come off an Ipswich players leg. At that point I would have bet them all the money I possessed that the ball had come of a Liverpool players leg, I had seen it clearly, but there was no way to prove it. Steadily grumbling about the incident I watched Ipswich lose 1-0. However we managed to get back to Uni before the Saturday night TV soccer. Our match was the featured game. How my friends howled with laughter when TV showed the incident and there was no mistaking that the ball had come off an Ipswich player. I was astonished, I still had a clear visual memory of the incident, the problem was it was bollocks!
    It was a valuable lesson, if you believe in an observable reality you are deluding yourself!

  22. Dan Duncan says:

    Wow.

    BTW: Love your missive, Barry about ardent sports fans suffering from brain damage…. Only to be followed by your ardent blog fans calling me a retard.

    Too damn funny. People actually had their blood pressure rise–and they took it personally(!)– because some “retarded” commenter–whom they don’t know–upset their heroic blogger, also whom they don’t know…in the course of a thread about partisanship and cognitive biases!!!! You can’t make this shit up.

  23. My read of the sentiment expressed — based on both the comments published here and the emails received privately — had more to do with the fact that you”

    a) Completely missed the psychological point of the post;
    b) Made a straw man argument against Technical Analysis
    c) Ignored the fact that a chart had nothing to do with MACD, and was only about Uncertainty;
    d) Were generally arrogant and disrespectful.

    I’d be happy to debate all manner of issues — TA, Fusion Analysis, Quant, Psychology —

    However, people that engage in misleading rhetoric and discredited debate techniques should expect the crowd to disapprove (however inarticulately it was expressed).

  24. Minderbender says:

    For the investor in the current climate, an underlying “change of game” is that many trends are not just trending or merely reversing (in a relatively orderly fashion), but instead trends (and more and more often, a confluence of trends and countertrends), are occuring at such an accellerated pace that they are better characterized as discontinuous changes. Often these are nearly unforeseeable.

    So the question becomes: how can we better see the playing field in front of us?

    One probably has to give up belief that these discontinuities can be predicted, or even perceived clearly enough to react quickly and timely.

    What one can do, with effort and often consternation, is to bring to light insights into what these discontinuous changes or big, rapid changes might be, and prepare yourself. Creating a set of hypotheses that can be tested over time allows one to identify the signals that indicate a different future than where one currently has placed bets.

    The conundrum, as Barry is highlighting in this uncertain environment, is that our deep-seated assumptions and beliefs color our lenses, one way or another.

    Insight is gained by explicitly articulating our assumptions and beliefs. It will be these orthodoxies that will need to be challenged and tested, over time.

    Intelligence is gained by using multiple lenses, multiple perspectives. While investors often look through innovation, business model, industry, economic and other lenses, in our attempt to be objective we often attempt to avoid or ignore the political perspectives, both small and big picture. (And as usually demonstrated, few of us are able to have a rational discussion uncluttered.)

    Given that one’s politics are perhaps one’s own deepest held beliefs, our own orthodoxies about what works and what is right/wrong or is successful/failure are also our biggest blind spots. And the most emotional.

    While someone else’s politics nearly always get on our nerves one way or another in a very under-the-skin way, today’s politics are of the discontinuous type, hence relevant for investors and personal and general well-being, if not financial survival – hence it is a useful exercise to articulate the political orthodoxies (and other types of orthodoxies), understand and challenge them (including articulating the counterpoint possibilities) in order to be prepared for the change; that is, prepared to act quickly because one has already thought of another outcome and has been watching for it, and is ready to act quickly, or at least quicker than others.

    Whether Barry and this blog are up for such a venture is another question, as well as whether it is a good idea to do a deep dive in this way in this blog (or worthy of effort to document in a book), or avoid it on these pages.

    It would not only be interesting, but also a way to systematically challenge and test the systemic orthodoxies in the big picture today.

  25. EAR says:

    FYI, I found video of the Balcetis and Dunning experiments…

    http://www.youtube.com/watch?v=DRaLpHoZA8E