The traditional story about reason is that it evolved to help humans see the world more clearly and (thereby) make better decisions. But on that view, some mysteries remain: why is the human brain so biased? Why are we so much better at defending our pre-existing views than at evaluating new ideas objectively?
In this episode of Rationally Speaking, Julia talks with guest Dan Sperber, professor of cognitive and social sciences, who is famous for advancing an alternate view of reason: that it evolved to help us argue with our fellow humans and convince them that we’re right.
Dan Sperber is a social and cognitive scientist. His most influential work has been in the fields of cognitive anthropology and linguistic pragmatics. Sperber currently holds the positions of Directeur de Recherche émérite at the Centre National de la Recherche Scientifique and Director of the International Cognition and Culture Institute.
“My Mama told me there’d be days like this.” – Van Morrison
Stock markets are in turmoil all over the globe. Monday was especially violent and what passes for financial television was awash in bluster, doom and gloom. Markets were gapping down in China, in London, in Japan and elsewhere. Emerging markets were getting crushed. Here in the States, the S&P 500 dropped about 4 percent, with the other major benchmarks performing similarly. The next day, on what appeared to be “Turnaround Tuesday,” a day-long rally was overcome by a major sell-off just before the close, pushing all the major indexes underwater for yet another day. Today has opened well, but (obviously) we don’t know what’s coming.
Over the previous six trading days, the benchmark S&P index has lost well over 200 points, or roughly 11 percent, putting it on track for its worst August in 17 years. But since the markets haven’t seen a significant correction (a loss of at least 10 percent) since 2011, we have been due for one. When financial markets are free-falling, and all correlations seem to converge on 1.0, analytically we move into the realm of the physics of landslides, where things are inherently complicated and unpredictable (which is not to say that more “normal” times are somehow simple and predictable). Continue reading →
Sometimes near Christmas Phil would slip out of Avery Fisher Hall after a performance with the Philharmonic, change jackets, and join some Army brass in front of a kettle. He didn’t hear “Bravo!” there. In that context, people who had just paid a lot of money to applaud his virtuosity would routinely ignore him and his music. It was as if he was hiding in plain sight.
In nearly every context and situation, we routinely hear, see and perceive exactly what we expect. No more and no less. Since concertgoers (or more precisely, concert-leavers) didn’t expect a world-class performer to be playing with the Salvation Army on a street corner for free, they didn’t notice when one was doing just that.
I have been now been writing Above the Market for four years. I began on August 1, 2011. I started and still write largely to clarify my own thinking and to force and enforce commitment on my part. Actual readers are a lovely bonus I didn’t expect when I started and that I never take for granted. After many hundreds of thousands of visitors from nearly 200 countries, I remain astonished at the level of interest Above the Market has received — it is far beyond what I thought possible, much less likely. I appreciate each and every reader. Anyone who writes wants to be read most of all.
As always, a few people deserve special mention and thanks.
Tom Brakke (his terrific blog is The Research Puzzle) generously offered outstanding help and guidance before I even had any readers to speak of and continues to offer wise counsel whenever I ask. Tadas Viskanta provided my first distribution (exactly one month in) to the expert community he serves via his blog, Abnormal Returns, which remains the standard for its type. I have now appeared there an astonishing 206 times — essentially once a week — and am extremely grateful for having done so. Joe Calhoun upped my exposure tremendously via Real Clear Markets, in which I have appeared almost as often (179 appearances). I am grateful and humbled to be featured often at these and other excellent sites, including Cullen Roche’s outstanding Pragmatic Capitalism (75 times), the indispensable The Big Picture from Barry Ritholtz (62 times), Bill Zimmer’s The Prudent Trader (59 times), Charles Kirk’s The Kirk Report and Josh Brown’s wonderful The Reformed Broker (59 appearances each). Other regular linkers include the CFA Institute, Ben Carlson’s fantastic A Wealth of Common Sense, Michael Kitces (the authority on financial planning), Wade Pfau (the authority on retirement income planning) and the previously mentioned Mr. Brakke. Jason Zweig and Morgan Housel — giants in financial journalism — have provided much help and inspiration. And finally, but in no way least, I greatly appreciate Research magazine publishing my monthly columns. Thank you all.
My “top ten” posts this year, based upon reader numbers, follow in order of popularity. I hope you will give them a look (or another look).
Finally, I’d like to focus on the following “not top ten” posts that didn’t get nearly as much attention — sometimes because they appeared before I had many readers — but which I think are worth reading. I encourage you to check them out.
I have enjoyed a nice holiday from blogging this past month and a vacation to boot. I welcomed my first granddaughter and got a good rest. Now I’m ready to get back to it. To everyone who has read, supported and helped me with this effort: Thank You! I hope four years leads to many more.
The online version of my July column for Research magazine is now available. I hope you will read it and the entire issue as well. Here’s a taste.
As a starting point, it should be clear (pardon the pun) that if transparency means anything, full disclosure will be a key part of our future. The Internet and everyone’s instant access to it militates against secrecy everywhere all the time. If nothing can be expected to remain secret, it’s silly to try to hide things.
I don’t mean full disclosure in the sense of lots of fine print that nobody reads and nobody wants you to read. Instead, within financial services, I mean full disclosure in the sense of conveying real understanding about what is being offered and why, about what can go wrong and the likelihood of something going wrong, and about what one’s goals are and ought to be along with a clear statement of what success will look like or cannot look like. Full disclosure will mean real clarity and no more complexity for its own sake (so as to justify a higher fee).
“The return of events – a replay of the patterns of the past seventy-five years of capital market history – will happen only for the most part. Most is not all. There is no certainty. Rational people do not bet the ranch on a model with an R2 of less than 1.00, that works out only for the most part. And God forbid it works out only for the minor part! Consequences, not probabilities, determine the decisions that matter. Diversification is still the optimal strategy for the long run.”
Recently I wrote a piece on financial services lies here at Above the Market. Lie #10 was “I don’t need help.” Here’s what I wrote about it.
American virologist David Baltimore, who won the Nobel Prize for Medicine in 1975 for his work on the genetic mechanisms of viruses, once told me that over the years (and especially while he was president of CalTech) he received many manuscripts claiming to have solved some great scientific problem. Most prominent scientists have drawers full of similar submissions, almost always from people who work alone and outside of the scientific community. Unfortunately, none of these offerings has done anything remotely close to what was claimed, and Dr. Baltimore offered some fascinating insight into why he thinks that’s so. At its best, he noted, good science (like good investing and good thinking) is a collaborative, community effort. On the other hand, “crackpots work alone.” Good collaboration among professionals and with good professionals by consumers improves investment outcomes, usually by a lot. A good professional can offer help with goals and plans, an Investment Policy Statement, asset allocation, risk management, behavioral management, protection from fraud (especially for seniors), and tax, estate and financial planning. We all need more help than we think.
A commenter calling himself (herself?) “pott” responded to that post as follows.
We all lie, especially to and about ourselves. Sometimes the lies are overt. Sometimes they are unintentional. Sometimes they are sales puffery. And sometimes they are devious. What follows are ten great lies in the financial services industry. The first three are propagated primarily by academic finance. The fourth is within the province of the academics but is a bigger problem amongst the professionals – advisors and money managers alike. The next three are predominantly professional lies. Number eight is asserted most often by the professional class and believed by consumers while the last two are universal but play out most unfortunately amongst consumer investors. I’m sure there are more. Do you have others to suggest?
The Magnificent Seven is a terrific 1960 movie “western” about seven gunfighters hired to protect a small Mexican village from marauding bandits. A re-make is currently in the works and the “original is itself a re-make of Akira Kurosawa’s Japanese classic, Seven Samurai. Meanwhile, Maleficent is the “Mistress of All Evil” in Sleeping Beauty who curses the infant princess to prick her finger on the spindle of a spinning wheel and die before the sun sets on her sixteenth birthday. Today I’m offering up a mash-up from these movies to outline what I’m calling the Maleficent 7 – seven inherent human problems and limitations that impede our ability to make good decisions generally and especially about money. Continue reading →