Friday was the first anniversary of the death of Nelson Mandela, the South African political giant and anti-apartheid leader who spent 27 years in prison for his activism before eventually being released and elected to become the country’s first black head of state. The NBA’s Toronto Raptors, and more specifically GM Masai Ujiri (who was born and raised in Nigeria), hosted a celebration called “The Giant of Africa” that evening to commemorate Mandela and to raise money for charity. Ujiri had asked the NBA over the summer to be able to host a home game on the anniversary; the league agreed and provided LeBron James and the Cleveland Cavaliers as opponents. The event was a star-studded affair and many celebrities were asked about their thoughts on Mandela’s life and legacy. One of those was the unfortunate Jonathan Bernier of the NHL’s Toronto Maple Leafs.
Obviously, even though “everybody knows him” and he was “a tremendous guy” who “changed a lot,” Nelson Mandel wasn’t a hockey player. It’s easy to laugh at. To be fair, it probably isn’t reasonable to expect a hockey player to have a lot of knowledge about history and world events. And, like many professional athletes, he is no doubt asked to attend many charity functions for which he doesn’t have a lot of background. He has also apologized, saying “I got flustered with the red carpet and I was nervous.” But that doesn’t make the gaffe any less outrageous. He didn’t have a clue about what he was being asked about and, clearly, he shouldn’t have tried to fudge his way through the interview. But what he did was much closer to what we all do than we’d like to think.
The primary problem here is confabulation, which occurs when people distort, misinterpret or even fabricate things without any apparent conscious intention to deceive. Those who suffer from confabulation are typically very confident about what they claim to “know,” evidence notwithstanding. Its more extreme forms are caused by brain damage or dementia. However, research has shown that prodding people to answer when they don’t know often results in a confabulated response. Add a television camera and the expectation of a response and silly answers aren’t a surprise (as Jimmy Kimmel’s “Lie Witness News” so aptly demonstrates).
Morten Kringelbach, an Oxford neuroscientist, suspects that confabulation is often routine. According to him, one interesting possibility is that we simply do not have access to all of the unconscious information on which we base our decisions, so we create fictions upon which to rationalize them. That’s a scary addendum to the narrative fallacy – 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.
This willingness to delude ourselves may help to explain the research which shows that what people think or claim their investment returns were and what those returns actually were have absolutely nothing whatsoever to do with each other. Nearly everyone claims to have done much better in the markets than they actually have. A related and perhaps even bigger issue is choice blindness. Careful research in this area demonstrates that people are all too willing to miss glaring mismatches between their intentions and outcomes, while nevertheless being prepared to offer introspectively derived reasons for why they chose the way they did.
In one experiment, subjects were shown pairs of cards with pictures of faces on them and asked to choose the more attractive. Unbeknownst to the subjects, the person showing the cards was a magician who routinely then swapped the rejected card for the selected one. The subjects were then shown the rejected face and asked why they picked the way they did. Often the swap went completely unnoticed. When that happened, subjects came up with all kinds of elaborate explanations relating to the rejected faces for their (nonexistent) choices – about hair color, the look of the eyes or the assumed personality of the substituted face. Clearly people can readily misremember what they did as well as why they did what they did and then confabulate explanations under conditions where they cannot know why they made a particular choice.
One famous study provided a display of four identical items of clothing and asked subjects to pick which they thought was of the best quality. Four out of five participants picked the garment on the right (a typical tendency). Yet when asked why they made the choice they did, the answers were always confabulations since the items were identical. The answers focused on the alleged fineness of the weave, a richer color or superior texture. The likely reason, per Kringelbach, is that we often make our decisions subconsciously but rationalize them in our consciousness via pure fiction. Another fascinating study found that we can be convinced we reported symptoms of mental illness that we had never mentioned and, as a result, we can actually start believing we suffer from those symptoms.
It is surprisingly common for stroke patients with paralyzed limbs to deny there is anything wrong. These patients often make up elaborate tales to explain away their problems. One patient, for example, had a paralyzed arm, but claimed it was normal. Yet when neurologist Vilayanur Ramachandran offered cash to patients with this type of problem, promising higher rewards for performing tasks they couldn’t possibly do – such as clapping or changing a light bulb – and lower rewards for tasks they could, they would always attempt the high pay-off task, as if they genuinely had no idea they would fail.
This result is indicative of problems every experienced trader has had to deal with. These include the common tendency to hang onto losses too long or even to double down on them, our willingness to create after-the-fact (and potentially dangerous) explanations for what happened that have little (if any) basis in fact, and the misremembering of our intentions when things don’t turn out as expected. In some intriguing research from BNY Mellon (that is far more intriguing than they realize), 56 percent of hedge fund investors before the 2008-2009 financial crisis said that they had invested in hedge funds for diversification purposes. Post-crisis, after their investment thesis had been clearly disproven — diversification in that instance failed and failed badly, 81 percent of those same investors claimed that their original investment theme was still valid.
It’s really tough to learn from our mistakes — which is crucial to investment success — when we don’t even recognize what our mistakes were, much less understand why we made them and what they mean, suggest and portend. On our best days, when wearing the right sort of spectacles and by tilting our heads just so, we can be observant, efficient, loyal, assertive truth-tellers. However, on most days, much of the time, we’re delusional, lazy, partisan, arrogant confabulators. All of us are guilty, if perhaps not as obviously and publicly as poor Jonathan Bernier.