Odd Lots - Why The Human Brain Loves To Be Lied To

Episode Date: March 5, 2018

In theory, people should want to know accurate facts about the state of the world. In practice, it's not so simple. Because of the way we evolved, and how our brains work, there are often things that we prioritize above the truth (such as fitting in with some tribal identity). On this week's Odd Lots podcast, we speak with NYU professor Jay Van Bavel, about a new paper he co-authored titled "The Partisan Brain: An Identity-Based Model of Political Belief." It explains how political ideology leads people to have distorted views of the world, and though this paper is specifically about politics, it contains important lessons for people in the market, as they seek to overcome the biases that make them bad traders and investors. See omnystudio.com/listener for privacy information.

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Saturdays and Sundays starting at 7 a.m. Eastern. Make us part of your weekend routine on Bloomberg television, radio, and wherever you get your podcasts. Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Wisenthall. And I'm Tracy Alloy. Hi, Tracy. Hi, Joe. We're in the same room together.

I know. And I'm looking at you while I say hello, which is different to what we normally do. But it's nice to see you in person again. Absolutely. Okay, so we're not talking about poker on this episode. Yay. No, I love poker and chess. Anything else that you love?

We're not talking about poker on this episode. But remember a couple weeks ago when we talked to Andy Duke, the former professional poker player? Of course. One of our best episodes, I think, in a while. And of course, her whole thing, and she has this new book about called Thinking in Bet. And one of her big ideas that she talked about was that to be successful in poker or trading, which is particularly relevant to us, people have to not get attached to certain ideas. They have to be willing to discard things that are wrong, which is very tough for people. Yeah.

There's a lot of confirmation bias in trading, and people kind of refuse to let go of trades that are going the wrong way, right? Because they think it'll come back eventually. They really want to be right or they want to fit a market move into some existing worldview and really jam it in. Yeah. And, okay, so we say all that. We're like, oh, people do this. And I think that's pretty easy for people to accept. But it raises the question of why we do this.

Why is it so hard for us to update our beliefs when new facts emerge? Or why are we so interested in coming up with an idea and fitting it into an ideology or worldview, even if it doesn't fit? Yeah. Why are we seemingly incontrovertibly forever doomed to repeat this one mistake? And why do we hate the truth, right? Yeah. Okay. Okay.

Yes. So today we're going to try to answer that question, why we, Why we hate the truth, why we all hate facts and why this makes us all bad traitors. Okay. Who are we talking to on this one? So I'm very excited. I came across this paper the other day. It's called the partisan brain, an identity-based model of political belief.

And it talks about various explanations for this phenomenon of our brains rejecting truth. And we have one of the authors, Jay Van Bavel. He is a professor at NYU. And he's going to walk us through some. of his research. What does he learn? Specifically, he's an associate professor of psychology and neural science at New York University. So he's going to explain to us why we like lies. Why we like lies, exactly. Let's do it. Dave Van Beval. Thank you very much.

Thanks for having me. So is this accurate? Do we just all hate the truth? Sometimes we love the truth. It really hinges on what our goals are. If we're looking for accuracy and that's part of our identity, then we look to see code evidence that we might be wrong or at least verification that we know what we believe. And if we are motivated by other goals, for example, if we have a commitment to a political belief or a political party, we might be compelled to believe them and ignore facts that contradict that particular identity. So I set it up obviously within the context of odd lots. We talk about markets and trading. The paper itself, though, is about, you know, as the title says, the partisan brain.

My intuition and my sense is that a lot of what you've studied about how political ideologues see the world has applicability to the realm of trading in other areas, but just sort of give us the overview of what this paper tried to show. So what this paper tries to do is bridge research in political science, which is about political parties and ideologies with research and psychology. So what types of things motivate us to engage in certain behaviors or hold certain beliefs, as well as neuroscience. So we looked inside the brain and tried to get a handle on if you're being biased in some way by some commitment to an identity or a political party, is that shaping the way that you're reasoning? So your prefrontal cortex, is it overactive in trying to argue or change

your understanding of something? Or is it shaping our memory or our emotional system or maybe even our perceptual interpretations of the world, which is really damning because if you're shaping how you see the world, it's going to be really hard to fix that. It's like a perceptual illusion where, you know, you see the dress one way, I see it another way with another set of colors and we'll just forever argue about it. So what exactly did you find then? Because in my mind, I can imagine, like I get a little bit of a shot of serotonin every time someone tells me I'm right or says that was a good question. So when I think about these sort of confirmation biases, that's what think about, but you seem to be talking about a wide variety here. Good question. Yeah, so confirmation

is certainly part of it. We want to confirm what we are preexisting beliefs. But what matters more is confirming or supporting or affirming particular identities you have. And so if you're a traitor who's committed to, you know, economic outcomes of improving your performance, you should care a lot about facts. If you're an investigative journalist or a scientist, if those are your identities, you care a lot about truth. But most people don't care about those things most of the time. And even professors or traders or journalists sometimes get led astray by other goals that they have,

a goal to achieve status or power or a firm sense of belonging. So to do what is popular or people might engage in what's called group think, where they're kind of fitting in with the group beliefs or norms. And those types of political motives and social motives can lead us astray. So you give some examples in your research of political ideologues or people who are belonging to one party actually remembering facts differently. So for example, Democrats are more likely to believe incorrectly that George W. Bush was on vacation during Hurricane Katrina.

So things like that. So but in the research, you explain that to some extent it makes sense. In other words, the brain puts a higher priority on belief. something that makes sense for the group, Democrats, rather than putting a higher priority on factual accuracy. So why does the brain elevate that sense above accuracy? Yeah, so that's a great question. It goes back to thinking about why do we have the brains we do. And so our brains evolved over several hundred thousand years in small tribes in Africa. And we were, humans are pretty flimsy creatures, okay? So we're not very strong or particularly

fast, so we're going to get swallowed up by other creatures very quickly, unless we cooperated and fit in. And if you didn't fit in, you were shondra excluded from the group. And so that was incredibly threatening. It was literally a threat to your survival. And certainly, you wouldn't have had reproductive opportunities if you weren't well respected and liked in your group. And you can see the same thing in chimpanzees, are one of our nearest genetic neighbors.

They care a lot about what their status is in the group. and if they're excluded or if they fall down to the bottom of the ladder, the outcomes for them aren't very good and they're less likely to survive or pass along their genes to future generations. And so through evolution, we've developed these brains that are well adapted for fitting into groups and getting along with other people in our groups. And so the extent we can do that. And a lot of it is through psychological tricks that guide us towards things that now look irrational. But if you think about human history, they actually were rational.

they helped us survive. And that's why we're the ancestors who have these particular quirks of cognition. So if you were a Stone Age Cassandra preaching the truth, but it threatened the rest of your tribe, they would kick you out, or at the very least you wouldn't be able to find a mate. There are no shortage of examples of that throat history. So I imagine that that sort of evolution and that tribal heritage probably doesn't align very well with the modern world. It doesn't.

Yeah, we live. So we're here in Manhattan. It's incredibly safe. We're safer and more prosperous than any time in human history. And so we really don't have a need to be afraid of a lot of things that we're afraid of. But we are because we have the brain that is oversensitive to things that might have killed our ancestors. What are some other examples of ways that the brain prioritizes things other than pure factual accuracy? Yeah.

So I would say I was mentioning to you, both earlier before we got on the show, is I'm a big sports fan. And one of the first things professional gamblers will tell you is don't bet on your favorite teams. And the reason is because we're so identified with those teams, we want them to win to affirm our fanship and identity with them that we make bad bets. And so if you ever want to sucker somebody, get them to support some team that they really love or have a flag flying out of their front porch on. And that's the type of person who's going to be more likely to overestimate the probability,

ability of success of that. And is it that same group think social comfort that causes that? Is that essentially that just go back to that same survival instinct? Yeah, it's driven by our need to belong, our need for status. Also, our need to be good virtuous people. So we like to think, especially our political groups, which are attached to morality, are virtuous or better than the other ones. And if we didn't think that, we wouldn't vote for them in the first place. And so we're constantly looking for evidence that we're on the right side of political history. So you touched on this earlier, but if you are a trader, you think that maybe because your motivation is to make money, the bias doesn't come into it as much? Is that your general just, I know the paper was about political biases, but.

Yeah, so let me give you an example of political bias. There are some research showing that if you put monetary stakes on what people say politically, they're more likely to be accurate. And so there is reason to believe that that kind of financial accountability can increase the extension. to which you value accuracy and guide you to the right answer, but it doesn't get you all the way there. And sometimes that bias pops up in other places in your behavior. And so I think traders have pretty good built-in incentives to make them more accurate. But again, they're human.

And when they're not thinking about the bottom line, they might be thinking about status or stature in the economic world or something like that. Those are the types of motives that are likely to guide them astray. So I remember thinking about this very vividly in the wake of, the financial crisis because there were a lot of these legacy hedge funders who didn't like fiscal stimulus and they didn't like quantitative easing. They're all kind of conservative and cranky and being too mean. But a lot of them came of age during the Reagan era. And they, no, and like it was very clear that experience and that ideology. And they, many of them were very bearish for too long.

And I remember the hedge funder David Tepper, who was a Democrat, and he did phenomenally well. And I don't think it's because Democrats are better traders. I think it was because, and I thought at the time, that he didn't have any particular reason to dislike the overall situation right now. And he didn't let that get in the way of his trading. Yeah. So I'm glad you connected politics to trading. I think there's a really good lesson here. So one is that through our experiences, we build an ideology, a sense of how the world works.

whether it's the financial system or social relations. And ideologies are really good because they can generate all kinds of predictions for us about what's going to happen and how we should play out certain situations. But the problem with ideologies is that we become extremely committed to them. We start looking for evidence that they're true. And the reason for that is think of how threatening it would be if I told you your whole belief system was wrong. You had to start from scratch.

And so that's the reason that we get defensive and cling to our worldviews and ideologies. And that's, and when in situations like that where they lead us astray, it often takes a lot of additional evidence to prove those people that they're wrong. They're going to cling to that. And especially if they've been on the public record or among their friends as saying they believe in it, there's a social cost to admitting you're wrong. So when it comes to building ideologies or trade ideas or financial narratives, I feel like the big difference now is that there is so much data and information out there. that you can pretty much cherry pick whatever narrative that you want. So how does that play into all of this?

Okay, so I'll say that's the same as what I think has happened in politics that's been really bad, which is that used to be you had three major TV stations and a trusted news anchor who came on at 5 p.m. We were all watching the news and it was vetted with the similar editorial standards. What's happened is you've had the dispersion of news. So now you can cherry pick what news you want to go to about whatever political story of the day. and you can kind of drill down into some rabbit holes on the internet based on whatever you want to believe. And it's probably the same thing with financial information.

There's so many people with so much information. And instead of relying on a small number of trusted sources of information, you could easily get stuck looking for evidence for your ideology and probably find it no matter what your belief system is. And so information can be very helpful to people at times if they use it in the right way. But the brain wants to find evidence that supports its belief. And that can lead us astray because we'll just cherry pick data that supports that belief. And scientists can do that too.

And it's dangerous for us just as much as it is for traders. And I'm thinking a lot, too, about the people who we know, like, are very bearish all these years. And even the upward move into stocks and the economy is proof that they're right because then that just shows that the whole thing is rigged in a bubble. Or for the bull's correction is always healthy. It's always exactly right. it's the flip side. I'm curious if there are patterns of people who are just better than others at not falling into this trap. Yeah. So I just saw talk on this from a colleague of mine at Yale who's measuring people's analytic abilities. And so there's a simple measure called the

cognitive response test that people can take. And some people tend to go with intuitive, automatic responses. And so one question might be there's a pond with lilies growing on it. And And, you know, after 50 days, the pond is entirely covered. And the lilies go double in size each day. And so how full was the pond at day 49? Half full. Half full, right? A lot of people...

I got really... By the way, this is really stressful. Yeah. You quizzed this in the middle of the podcast. You did good. You know, a huge proportion of Ivy League students fail this, these types of questions. They're not easy. The reason is even people who are smart, the instinct is to...

to say 25 days. If they're growing at twice the rate every day and you're thinking it's 50 days, the pond's full, the halfway point should be 25 days. And so a lot of people will say that response and they do it automatically. Some people like you, stop, catch yourself, analyze your thinking critically and then give a response. This just proves that I should be a traitor, right? I mean, this is like, I mean, if we just. Odd lots capital.

Yeah, exactly. You have the opportunity. I have what it takes. So a lot of us have intuitions about what we should do or what's right or wrong. But the best people among us say, wait a second, that sounds too good to be true. Or that news doesn't seem quite right. I'm going to go to fact check it. And a lot of fact checking now you can do in 30 seconds. You go to Snopes or something. But most people don't do that. They are like, oh, I knew that all along. Now I'm going to share it. But do those people who do take the extra 30 seconds

to check something on Snopes that they saw on Facebook or catch themselves before they answer a riddle. Did they descend from some other group of people? Did they do really poorly in the Stone Age? Yeah, why don't they have that instinct to, you know, just basically, well, move more on instinct. Yeah, I guess there's some, the way of thinking about it is that there's some situations where going with your instinct is helpful. Yeah. And so what ends up, what that means is there's other situations where it doesn't. So you end up with a normal distribution of humans, some of which are very intuitive and guided by automatic reactions and the rest of which are kind of the opposite.

They're catching themselves. I do think I would not have done well in the Stone Age for what it's worth. I'm just putting it out there right now. I think I would have been cast out pretty much. And not found a mate. Okay. You can get the news whenever you want it with Bloomberg News Now. I'm Amy Morris.

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We live in our own worlds of our own facts and our own news sources. And so that aspect of it people will grasp. What can is there, you talk a little bit in the paper about things that can be done to ameliorate some of these effects. So theoretically, if we want to save democracy, it would be nice if maybe people could emerge towards one set of shared facts. What works in terms of getting people to lower social identity in their mental hierarchy? Yeah.

So one thing is developing. other identities that value accuracy. And so all of us have multiple identities. I am a father, a son, a professor, a Canadian, and all of these come online at different times. When I'm watching the Olympics, I'm thinking about my Canadian identity.

And at that point, I'm just cheering for my team, and I might make bad bets on the Canadian national hockey team. But when I'm thinking through the lens of a professor, that comes with a certain set of training and expectations, and I comport myself in a different way. apply, kind of I put on that set of glasses and see the world through that lens. And it's a lot more critical than my other identities. And so when I want to evaluate facts or before I'm

going to share something on Twitter, you know, among my followers, I might want to share something that is consistent with my identities, my other identities, but often I catch myself and I ask, is there data to support that? And that's basically because I realize my professor friends are going to be seeing it. And if I share things that are untrue or unfactual, they're going to jump on board. And so that community I belong to is very fiercely skeptical. And so you can build your own identities and hang out with communities that value accuracy. And some of us are uncomfortable. It's very threatening and upsetting to be told you wrong, especially in public. Does democracy work if we are biologically destined to favor lies and we have a lot of lies

being flung at us by new forms of media and the internet? Yeah, so democracy assumes that voters are informed and that they can determine what their best interests are or the best interests of the country in vote. But if they're fed inaccurate information, the collective wisdom of the population is going to go awry. And that is a huge risk to democracy, not just in the U.S., but around the world right now.

And that's why other countries are having bots generating news that serves their interests and not ours. See, this is why markets are better, because it doesn't matter if a bunch of people believe lies. It all comes out in the wash, right? And so, whereas democracy, you sort of choose one person over the other. In markets, you converge on a single price, which tends to be more or less usually a pretty good price,

although there are bubbles and stuff like that. You know, I'm thinking back to a really old episode we did on the podcast. Remember Dr. Brett Steenberger, he's a trader psychologist. He was like the real life Wendy Rhodes from billions who went into hedge funds and talked to traders about improving. So I'm curious based on, you know, if you were brought in, if a hedge funder wanted to have you teach his traders essentially how to overcome their biases, how to overcome ideological ruts that might prevent them from seeing the truth in front of them, how might you apply what you've learned about the sort of ameliorating political, the effects of politics. politics to the world of markets. Yeah, so maybe I would come up with a handful of tips. The first one is take your ego out of it.

So take your own personal motives for things like status or belonging out of it as much as you can because those are going to guide you astray on average. The next thing is have a system where you check yourself. So when you feel like your intuition is to go one way, have some system where you wait an hour or a day or sleep on it before you make a big trade. And so you're able to process more information and make it based on analytics. So that also stops you from engaging in group think and going with the flow of things. The other things I would say is try to put your political ideology out of the equation.

And so as you mentioned, that happened in the recovery. Some people had ideologies based on past experiences in the market and held on to those a little too long. So get your ego out of it, your ideology out of it, build in a process. that allows you to deliberate. And the other thing I think to do is to have a process where people around you, you can call on them to be critical of you and create a culture of skepticism. And so I met with the CFO of eBay and gave a talk with him once. And he said in their C-suite meetings, they would give a different person before each meeting a black helmet.

And that person was a designated dissenter. And because because dissent is really hard, especially in groups because people might think you're trying to to undercut them or show off or sabotage the group. But it turns out people actually care most about the group outcomes are most likely to dissent. But we tend to suppress it to go along and fit in and to avoid being socially excluded. And so build in systems to encourage dissent. It reminds me I took my daughter to the Natural History Museum recently and they showed a mask that judges used to wear some tribe thousands of years ago.

And it pointed out that the idea behind wearing the mask. or something is to depersonalize the decision so that the judge, so that it's the law speaking and not the individual. So when you say a black helmet, creating some visual symbol of this person isn't allowed to dissent, I could see how that can, uh, has a long history of helping to break through and make communication better. Yeah. Well, that was a fantastic conversation. And I love this topic. Dr. J. Van Bavel. He is the author of a new paper, the co-author of a new paper the partisan brain, an identity-based model of political belief. It's a pretty grim read from a future of democracy standpoint. I think this conversation left me very down on that front. But look,

it can maybe have some implications for people who want to make money in the market. So that's good, right? Yeah. Thank you. Thanks a lot. Joe, next Oddlots podcast, I'm showing up with a black helmet and I'm going to disagree with everything. I like that idea. You know what I really liked about this conversation is there's a lot of people would talk about rationality. And there's a lot there's, I think there's kind of a cult of rationality among certain people and they people pride themselves in being more rational than the next person. What I like about this framing is that it's not that maybe people are more or less rational, but it's sort of like a meta rationality. And so in the sense that maybe it's not

rational to not acknowledge some certain fact, but maybe it is just more rational for people to want to agree with their neighbors and that ultimately it just might make more sense. Well, Also, particularly in trading, we've talked a number of times about how markets can be wrong and you can be right. But ultimately, you're going to lose money on that trade if everyone is going in a certain direction and you're trying to fight the tide. So that really complicates matters. And it's particularly challenging for traders and strategists because sometimes out of consensus views are severely punished. Punished? Yeah.

Because there's group think at internal organizations such as big investment firms. group think all over the place. So if you were someone who went long Lehman Brothers in September of 2008, you were now, you're a complete idiot. But it could have been that they were bailed out and Lehman Brothers could be worth 20 times what it was then. And everyone would say, this person is a genius. So there's all kinds of incentives to just go with the crowd and not take the huge risk. Yeah, absolutely. Can I just say one more thing? I'm really into anthropology lately. So I like this idea that we're going to start looking into the evolution of humankind to explain markets. Let's do that. Let's do some more. All right. This has been another episode of the Odd Lots

podcast. I'm Tracy Allaway. You can follow me on Twitter at Tracy Allo. And I'm Joe Wisenthal. You can follow me on Twitter at the stalwart. Are you on Twitter? I'm on Twitter at J-A-Y-V-A-N-B-A-V-E-L. And you should follow our producer, Tof-Forhez, at Forges-T, as well as the Bloomberg head of podcast, Francesca Levy, at Francesca today. Thanks for listening. On April 4, 23, around 2 in the morning, a man was found stabbed multiple times on a sidewalk in downtown San Francisco. Hey, who did this to you? What happened next turned the story into a political firestorm.

Reports have identified the victim as Bob Lee, the founder of Cash App. From Bloomberg Podcasts, this is a. is Foundering, The Killing of Bob Lee, beginning April 16.