Credulity Bias

“The Moon is made of green cheese.”

While we might like to believe that we are all perfectly rational, reality is far different.  Unfortunately, we tend to be susceptible to the manipulative messages that the financial industry and the popular press put out.  Specifically, mutual fund companies tend to conspicuously advertise positive information, while suppressing negative information.  The popular press encourages conventional wisdom on investing issues because it helps them sell magazines (despite being probably wrong).

You think financial news is published because it has useful information you need to know?  Think again, it’s published only because the publisher knows you’ll read it.  And of course, because the paymasters (= advertisers) like to see the information published fall in line with their colorful ads.

Don’t you realize that the guy giving advice on TV doesn’t know you, your circumstances, your goals, or your risk tolerance.  He doesn’t really care about you, either.  He just wants to be seen on TV.

When appearing on “Money TV” (CNBC, Bloomberg, Brainwash), most money managers are introduced with a word about how much money they manage, rather than how well they’ve done managing it.  There’s a reason for this.  “Joe Smith helps oversee $10 billion” sounds better than “Joe Smith has underperformed the market his entire career.”

The more someone is on TV, the less likely his or her predictions are to come true. (University of California, Berkeley psychologist Phil Tetlock has data on this).

You are under no obligation to read or watch financial news. If you do, you are under no obligation to take any of it seriously.

“Everything we hear is an opinion, not a fact.  Everything we see is a perspective, not the truth.” — Marcus Aurelius, Roman emperor

“Knowledge is power only if man knows what facts not to bother about.” — Robert Lynd, sociologist

“What information consumes is rather obvious: it consumes the attention of the recipients.  Hence, a wealth of information creates a poverty of attention.” — Herbert Simon, political scientist

“A reliable way to make people believe in falsehoods is frequent repetition because familiarity is not easily distinguishable from the truth.” — Daniel Kahneman, Author “Thinking, Fast and Slow”

“The instinctual shortcut that we take when we have “too much information” is to engage with it selectively, picking out the parts we like and ignoring the remainder, making allies with those who have made the same choices and enemies of the rest.”  — Nate Silver, Author “The Signal and the Noise”