Posts filed under “Cognitive Foibles”

NYT Discovers Confirmation Bias

 

“Perhaps something more complicated than sketching out voting districts is at play. The polarized political map is now accompanied by a media ecosystem that is equally gerrymandered into districts of self-reinforcing discourse.”

 

From the better-late-than-never files:

I want to direct your attention to an article from David Carr, titled It’s Not Just Political Districts. Our News Is Gerrymandered, Too. That’s where the above quote came from.

The bad news is that we learn that the media reporter for one of the more important American newspapers is only now discovering both confirmation bias and the Balkanization of the press. The good news? Well, let’s consider this a form of progress.

As we have written oh so many times, confirmation bias is an expensive habit of investors. We tend to read that which agrees with our investments and posture. We disagree and downplay that which advises the other side of the trade. We even selectively forget things that challenge our views and holdings.

In politics, it can divide the electorate into two warring camps, with Party first and Country second. But it also works to drive people away from the political parties — which may turn out to be a good thing in the modern era. Party affiliation has fallen over the years, and is now near its lowest levels, pretty much, ever. Independents are the largest voting group (even if they don’t vote as a bloc).

Investors that read only that which agrees with their views do poorly in markets.

Political strategists who read only that which agrees with their views do poorly in elections.

Its not only important to be “reality based,” you must also seek out dissenting views and opinions. Find intelligent people of differing perspectives and worthwhile process, and see what they have to say. Not despite their disagreeing with you, but because of it.

I don’t always agree with what colleagues like David Rosenberg or Doug Kass or Bill Fleckenstien argue — but I respect their process, and know their is an intelligence and method to their writings. Reading what they say, especially when I disagree with it, makes me a better investor.

~~~

One last issue with Carr’s column: He makes the horrific comparison of confirmation bias in news consumption with gerrymandering. For the record, the former is a hard wired cognitive error inherent to all humans; the latter is a corrupt process that serves to defeat the ideals of Democracy and “One Man, One Vote.” They are not remotely similar, and the NYT should be embarrassed by the comparison.

Source:
It’s Not Just Political Districts. Our News Is Gerrymandered, Too.
David Carr
NYT October 11, 2013 http://www.nytimes.com/2013/10/12/business/media/when-our-news-is-gerrymandered-too.html

Category: Cognitive Foibles, Financial Press, Really, really bad calls

15 Biases That Make You A Dumb Investor

I am off to Toronto, where I am presenting at the annual CFA forecasting dinner. (I am the counter-programming, which means I get to explain why you humans are so bad at forecasting. From Morgan Housel, here are several cognitive biases that cause you to do dumb things with your money. Be sure to check…Read More

Category: Cognitive Foibles, Psychology

Biased Assimilation and Attitude Polarization

Biased Assimilation and Attitude Polarization: The Effects of Prior Theories Lord, Ross & Lepper (1979) People who hold strong opinions on complex social issues are likely to examine relevant empirical evidence in a biased manner. They are apt to accept “confirming” evidence at face value while subjecting “disconfirming” evidence to critical evaluation, and, as a…Read More

Category: Cognitive Foibles, Psychology, Think Tank

Is the Market Rallying on Syria or Summers?

There is a certain school of thought — and I use that word loosely — that seemingly tries to tie each twitch of the market, every noisy jag up or down — to some broader issue. Partisan politics, economics, technology, and of course, presidential elections becomes fodder for this school of thought rationalization. Flip on…Read More

Category: Cognitive Foibles, Current Affairs, Markets, War/Defense

Paul Farrell: Beware of Predictions, Optimism Bias

The following assortment of quotes comes from Paul Farrell   2007-2008 bank credit meltdown — the top nine happy-talking gurus False predictions made before the 2008 subprime credit meltdown: ‘Mad Money’ Jim Cramer: “Bye-bye bear market, say hello to the bull.” Ken Fisher: “This year will end in the plus column … so keep buying.”…Read More

Category: Cognitive Foibles, Really, really bad calls, UnGuru

Reagan’s Million-Jobs Month Revisited

* Sigh.* @TBPInvictus here I see once again that the canard about Reagan’s million-jobs-month is making the rounds: “Reagan’s best job month garnered the very top ranking since WWII with 1,114,000 jobs added in September 1983. A single month with more than a million jobs added. So far Obama can only wish for such a…Read More

Category: Analysts, Cognitive Foibles, Data Analysis, Financial Press, Really, really bad calls

The Narrative Fails

Its Friday (and a hot summer Friday at that), and as such, I like to wax philosophical about what I see around me as some of the broader issues today. Cullen Roche of Pragmatic Capital sets the scene for us: “The economy continues to do okay, the stock market is hitting all-time highs every day,…Read More

Category: Cognitive Foibles, Investing, Philosophy, Psychology

Sitting Down with Dr. Daniel Kahneman

Dr. Daniel Kahneman, winner of the 2002 Nobel Prize in economics, joins us to discuss his book, Thinking, Fast and Slow, and how different systems of thought can affect our judgment when making decisions.

 

Hat tip Morgan

 

Category: Cognitive Foibles, Psychology, Video

Pushing Back Against the Big Rally Miss

>   Two weeks ago, I managed to anger quite a few people with a Washington Post column titled: Missed the big market rally? Here’s what to do now. There were a variety of perturbed commenters both here and at WaPo as well as angry emails and assorted bemused tweets. While lots of readers, commenters…Read More

Category: Apprenticed Investor, Asset Allocation, Cognitive Foibles

Morgan Housel Is A Permanent Optimist . . .

  Hey, today we are having lunch with the astute Morgan Housel of MF. I have been enjoying his writing for years now — he is my favorite Motley Fool writer. Here is his very simple explanation for why the end-of-worlders have been wrong, and will continue to be wrong, for most of the future…Read More

Category: Cognitive Foibles, Investing, Philosophy