Why do sometimes we ignore evidence that is right in front of us? April 8, 2008Posted by shaferfinancial in Uncategorized.
Tags: baseball stadium, decision making, financial service industry, mutual funds, stock picking, Wealth
Last night I was given a lesson in social-psychology that really hit home. As some of you know, my Ph.D. is in that discipline so it is interesting when the lessons learned are played out in front of you. Perhaps some of you have wondered the same thing as myself. When it comes to making decisions, how is it that people can ignore evidence that is right in front of their face. In order to get to that answer we need to have a little understanding of how our brain works. Our brain can be understood as a complex sorting device, looking for sensory input (information) that reinforces our ego or self conception. We understand the world through simple paradigmatic webs. These webs can be as complex as a religious belief or as simple as a distrust of corporations. This is how we get people who see the same information, perhaps on a jury, to disagree over its meaning. In its most intense form we have mental illnesses like eating disorders where people see themselves as overweight despite wasting away.
The result is that information that doesn’t fit into these carefully structured webs are set aside into other parts of the brain that work unconsciously. These bits of information do not become conscious until a breech of the web recalls thems. The breech can almost anything, but for most of us it is a traumatic event like a divorce, job loss, etc.
Last night I met with a subcommittee I am engaged in that is looking at the proposed new baseball stadium for St. Petersburg. We were going over the recommendation report of which I am in a minority opposing the recommendations. We were going over the part of the report where the committee was stating the reasons why the parking and traffic plan paid for by the Rays was not correct and the committee thought there would be a terrible lack of parking and traffic issues. Funny thing is that last weekend the St. Pete Grand Prix (a road race) took place. Each of three days more people came to downtown St. Petersburg than would come for a sold out baseball game. So we had evidence right in front of us as to the parking situation. The other dissenting member pointed out that one parking garage was never sold out and further there was no issues for any of her friends coming from Tampa to get to the event and find parking. So here I was listening to someone insist that there would be large parking and traffic issues on baseball game days, while the evidence pointed out a general lack of problems and points to the accuracy of the Ray’s parking and traffic report. Now the majority behind this report were already against the proposed stadium from day 1. Their web had already been created to catch evidence against the proposed stadium. This is why they were unable to process the contrary evidence. When I repeated the evidence, they found all sort of creative ways to downplay it. The report will go out with this section about parking and traffic problems unchanged despite evidence to the contrary.
Ignoring the evidence is a problem for us all. Take the financial service business for example. The evidence is usually easily found. Yet, most people fail to accept it. How often do salesmen in the financial services industry claim they can or a money manager can beat the market? Quite often, right. Do we believe them? Well, often, yes we do. What is the evidence? The amount of people who have been able to beat the market over a 15 year period is very select, perhaps only a handful. But we want to believe that salesman when he tells us about his or the fund’s stock picking ability. Or, take the claim that wealth can be created by investing small sums over a long time into mutual funds. Do we ever investigate this claim, run the numbers, look at the assumptions? Generally not, because we want to believe it can be done. When defined benefit pensions are scarce, we want to believe there is a easy alternative for us to create a pleasant retirement. So we set the web up to remember the salesmen claims, but not to retain the contrary evidence. It is the way our brain works.
Then something happens. Perhaps we hit 50 years old or we have a medical emergency that requires cash. We look at our investments and panic at its low amount. So sometimes we simply increase the amount we send each month to the 401K assuming it is our lack of funding that is the problem or sometimes we get involved in extraordinary risky investments to try to catch up or sometimes we sink into depression. The suppressed evidence has now caught up with us.
The hard thing to do is to disentangle the web and create a new web that incorporates all the evidence hidden in our unconcious mind. However, that is what is required to progress, to become whole. Difficult to do, but not impossible as many do it every day. Shafer Financial wishes everyone good luck in untangling their financial webs and creating one based on the evidence. This is what this blog is dedicated to help people do.