Regular readers of this site know that I reference and write about what Nassim Taleb calls the narrative fallacy often. It is our tendency to look backward and create a pattern to fit events and to construct a story that explains what happened along with what caused it to happen. We all like to think that our decision-making is a rationally based process — that we examine the evidence and only after careful evaluation come to a reasoned conclusion as to what the evidence suggests or shows.
But we don’t.
Instead, we spend our time running around looking for stuff that we can exploit to support our pre-conceived notions. We like to think we’re judges of a sort, carefully weighing the alternatives and possibilities before reaching a just and true verdict. Instead, we’re much more like lawyers, looking for anything that we think might help to make our case and looking for ways to suppress that which hurts it. As Nate Silver put it in a recent and interesting interview, “our brains are wired to build stories around essentially random data.”
That tendency is driven in large part, as Silver notes, by the way we are built. We inherently prefer words to numbers and narrative to data — often to the immense detriment of our understanding. Indeed, we know from neurobiology that when presented with evidence that our worldviews are patently false, we tend to refuse to engage our prefrontal cortex, the very part of the brain we need most to make sense of the new. It should be obvious that this aspect of our make-up is problematic and potentially damaging to every decision we make, investing included.
Keeping one’s analysis and interpretation of the data reasonably objective – since analysis and interpretation are required for data to be actionable – is thus really, really hard even in the best of circumstances. It is a key reason why I regularly maintain that while information is cheap, meaning is expensive. Moreover, our inherent preferences and desires mean that a good story can be really dangerous in that it can be used to sell almost anything, often with surprising ease. That’s the narrative risk.
Watch Mad Men‘s Don Draper (Jon Hamm) use the power of words to sell a couple of Kodak executives on himself and his firm while turning what they perceive to be a technological achievement (the “wheel”) into something much richer and more compelling — the “carousel.”
Draper uses his depiction of the carousel not to tout its newness, but rather to conjure memories that allow us to circle back towards home, security and presumed truth, despite the chaos and uncertainty that seem to overwhelm us. We may even tear up in the process. Notice how psychiatrist Steven Schlozman of the Harvard Medical School describes it.
“We remember what we remember not just for the facts but also for the feelings that go along with the facts, and the ability to balance feeling with fact is what keeps us out of trouble. The converse, however, is also true. The inability to balance feelings with facts allows all hell to break loose.”
As I noted recently in another context, this idea is consistent with research showing that in order to help people understand the implications of various findings and conclusions — to persuade — we often need to do more than lay out a data-driven, logical argument. Instead (or, better yet, in addition), we need to provide a sort of emotional charge. Thus, for example, instead of simply showing people the numerical consequences of a certain action, we need to find a way to load the results with aversive emotion. “Load” is obviously a — well — loaded word. But it was chosen to emphasize the magnitude of risk.
In the context Draper created, the carousel seems to sell itself. I have watched this scene many times, and I always feel (more than think) that the “wheel” is not worthy of the talent that sells it. Moreover, the line between being sold and being inspired is blurred to the point of disappearance.
Thus, like every superhero forced to decide whether to use his powers for good or evil and making the right choice, we needn’t use narrative trivially, much less to deceive or obfuscate. Instead, we can use words to transcend the mundane — not just to make important points, but to make them stick. Words can be motivational. They can be great and can inspire greatness.
Narratives are crucial to how we make sense of reality. They help us to explain, understand and interpret the world around us. They also give us a frame of reference we can use to remember the concepts we take them to represent. As reported recently in The Atlantic in the context of sports and political analytics, “[d]ata is an incredibly valuable resource for organizations, but you must be able to communicate its value to stakeholders making decisions.” We all recognize that value judgments are often powerfully and dangerously emotional.
As we have seen, great communicators (like Don Draper or, more accurately, Matthew Weiner) evoke images and emotions through the use of compelling narrative that can be used effectively to incite a strong response. During the 1984 election campaign, for example, Ronald Reagan talked about our future in outer space and the importance of our going there while his soon-to-be-crushed opponent, Walter Mondale, kept talking about how much doing so was going to cost. It isn’t hard to guess who captured people’s imagination. Better still, watch this address and feel the power of Reagan’s communication skills. I dare you to try not to be stirred.
If we are best to commemorate those who began the rescue of Europe, “the boys of Pointe du Hoc,” like Reagan we won’t focus upon a factual recitation of their amazing accomplishments. Instead, we will inspire images that seem to put things in proper perspective. In the words of the poet Stephen Spender, they are men who in their “lives fought for life and left the vivid air signed with honor.”
Good investing isn’t possible without good math. But piercing analysis isn’t any good if it isn’t implemented. Stories and words, properly used, can get things done. If you have a message to get across to inspire people to take action, don’t just stick to the data. Tell good stories, evoke powerful images and conjure vivid memories. That’s the narrative opportunity.