The Folly of Fools (25 page)

He that has once done you a kindness
will be more ready to do you another
than he whom you yourself have obliged.

COGNITIVE DISSONANCE IN MONKEYS AND YOUNG CHILDREN

It is of some interest to know whether animals show cognitive dissonance and at what age children show such effects. Birds often show the human bias of preferring items for which the birds work harder (in their case, food) over identical items achieved through less work. The same is true sometimes of rats.

A more novel set of experiments shows that when a monkey is forced to choose between two items it is equally fond of (say, a blue M&M instead of a red one), it will then prefer another color (say, a yellow M&M) over the one it just rejected (red), as if needing consistency. That is, having rejected red once, to remain consistent it must do so again. But if the initial choice is made by the human experimenter (blue over red), this either has no effect on the monkey’s subsequent choice or the monkey then chooses the one the human kept for itself, as if this must be the better one.

Nearly identical experiments run on four-year-olds produce nearly identical results. When the children are forced to choose between two equivalent objects, they continue to reject the one they rejected the first time, as if staying true to themselves. That is, having rejected one, the child acts as if there must have been a good reason and rejects it again. This occurs even if the child does not see which item it chose until after having made its choice. Once again, as with the monkeys, when the experimenter makes the choice instead of the child, this either has no effect on how the child chooses or it chooses the one the experimenter kept for itself, as if this must be the better one.

In short, though there are only a few studies of cognitive dissonance in other animals and in children, they tend to give similar results: each party acts as if it is rationalizing its prior choice as having been based on sound logic and hence worth repeating when given the same opportunity. Given the theory advanced in this book, it is tempting to argue that the children and the monkeys may be projecting a general illusion of consistency to impress others.

By now we have laid the foundations for an understanding of the evolution, biology, and psychology of self-deception. We can now apply our logic to everyday life, including airplane crashes, historical narratives, warfare, religion, other intellectual systems, and our own lives. The applications extend in all directions.

CHAPTER 8

Self-Deception in Everyday Life

T
he logic we have been developing applies with full force to everyday life—so much so that its validity can, in part, be tested there. How much does our system of thought help us understand our lives? What interesting facts of everyday life are completely hidden from us until research or logic reveals them? Some biases in our thinking have been studied in surprising detail, and others are known only from anecdotes. I begin with the study of the stock market and what it reveals about sex differences in overconfidence, as well as the unconscious use of language to hype the upside of the market—that is, to encourage trading.

SEX DIFFERENCES IN OVERCONFIDENCE

Overconfidence must—in competitive situations—sometimes give an advantage, but insofar as it induces risky and ultimately unprofitable behavior, it must also have costs. Clearly our confidence in ourselves is an important variable in many situations affecting and predicting our behavior. Others would do well to attend to our self-confidence—that is, if they can measure it accurately. After all, they may just have met you, but you have known yourself all your life. So we expect overconfidence on deceptive grounds alone (see Chapter 1). In general, across many species, including our own, males are more likely to profit from overconfidence than are females. Certainly their potential reproductive success is usually higher (because males usually invest less per offspring), so the payoff for successful overconfidence is likely to be higher as well (see Chapter 5).

Stock trading by amateurs (via computer-placed options) provides a nice situation from daily life to study the bias. Competitive interactions are at a minimum—your overconfidence is not directly affecting any of the other investors you are competing against, none of whom knows you—so with no benefits from overconfidence, costs are expected to dominate. Under perfect information, stock prices are at their true value, so that trading produces random effects. Under mildly imperfect information, prices are close to true values, so that trading produces near-random direct effects. But trading is costly, as you pay a fee for every trade. Given these facts, it is clear that there is substantial overtrading in the US stock markets. Nearly 100 percent of stocks change hands every month and five billion are traded per day (2007). Given the cost of each trade, the net effect of this level of trading is negative. To cite but one example, in the general population, males trade stocks more often than do females (45 percent more in one sample), and they suffer accordingly: 2.7 percent annual loss in returns compared to 1.7 percent loss for females. The sex difference probably reflects the possibility of greater reproductive returns for males of financial success than females, an upside bias that is expected in many male activities given their greater chance in general to achieve especially high reproduction.

One work was notable for studying multiple kinds of overconfidence as possible correlates of trading volume. The key correlate to overconfidence turned out to be the good old “above-average effect.” The average investor rated him- or herself above average in ability and past performance. And the more an individual did so, the more he or she traded, even though there was no correlation with actual past performance. This resulted in more trading with no average gain and an average loss due entirely to the transaction costs. Believing that there is more information than in fact there was, that is, underestimating the variance of the signal, was not correlated with trading activity, only overestimation of self.

Overconfidence in currency markets provides a nice contrast. Here transaction costs are negligible (about one-hundredth of the 3 percent stock cost), so there is no immediate downside to overtrading. There is a widespread tendency for professional traders to overestimate their success and their ability to forecast correctly. Overconfidence has no effect on profitability (expected given negligible transaction costs), but there are positive social correlates. Overconfidence is positively associated with individual rank and trading experience. Here cause and effect are by no means certain, since in other domains it is well known that people of superior rank and age show higher confidence, with no superiority in actual performance.

Greater male than female overconfidence has been detected in studies of arithmetic contests. An individual can either be paid piecemeal (50 cents per correct answer adding sets of five numbers for five minutes) or in competition with three others, winner take all: $2 per correct answer for the highest scorer, nothing for the other three. Under perfect information about one’s relative skill, the top one-fourth should choose to compete and the rest should choose to work piecemeal. This is far from what happens: 35 percent of women choose to compete, close to expected, but fully 75 percent of men choose to compete in a task in which, on average, only 25 percent can win. Overall, when matched for ability, women have a 38 percent lower chance of deciding to compete. This means that on the upper end of ability, women undercompete, and on the lower end, men greatly overcompete. This is yet another example of a degree of self-deception—here in the form of overconfidence—having a positive effect under certain circumstances and negative under others, the net effect being negative.

Another cause of misbehavior in stock trading is a tendency toward thrill seeking. Like those who are overconfident, those who have a special need for thrills tend to trade more often to their own disadvantage, and this is independent of overconfidence. Men, in turn, are vastly overrepresented among thrill seekers, at least as measured by speeding tickets, drug use, gambling, and participation in dangerous sports (such as hang gliding). In Finland, those with more speeding tickets trade more often to their own disadvantage. What the advantage is to the thrill seeking has not been measured, but it probably has to do with showing off—the stunt properly executed may be a sight worth recounting.

METAPHORS IN THE STOCK MARKET

A nice example of unconscious persuasion concerns metaphors about the stock market taken from daily news broadcasts. The stock market moves up or down in response to a great range of variables, about most of which we are completely ignorant. The movement mirrors a random walk, with no particular pattern. And yet at the end of the day, its movements are described by the media in two kinds of language (agent or object) that are often used for movement more generally. The average listener will be completely unconscious of the metaphors being used. The key distinction is whether an agent controls the movement of something or it is an object moved by outside forces (such as gravity). Here are examples of the agent metaphor for stock movements: “the NASDAQ climbed higher,” “the Dow fought its way upward,” “the S&P dove like a hawk.” The object metaphors sound more like: “the NASDAQ dropped off a cliff,” “the S&P bounced back.”

Agent metaphors tempt us to think that a trend will continue; object ones do not. The interesting point is that there is a systematic bias in the use of the language—up trends are more the action of agents, while down trends are externally caused. Both of these metaphors are stronger for movement that is consistent, and the bias exists whether reporting is occurring after a long up market or a long down market. Even experimental student commentators unconsciously adopt the appropriate bias: agent for the up trends, external factors for the down. Now here is the average upward bias. The more a market moves up during a day, the more it is given an agent metaphor that, in turn, (unconsciously) suggests continued upward movement. Since the opposite is true for down days—less agent metaphor, less expectation of continued downward movement—the net effect is positive. Investment information should lead to more investment, on average. Surely the effect of this bias in media language is to encourage investment overall, just as supplying information about the day’s trends instead of merely reporting them (up or down) gives a greater expectation of a trend and hence greater trading after up movement, at greater net loss (there is a cost to trading and no benefit during a random walk). Perhaps the function of the financial commentators in the first place (from the standpoint of those who employ them) is to hype interest in the market.

MANIPULATIVE METAPHORS IN LIFE

The use of metaphor is a key part of language, structuring meaning by embedding more abstract concepts in day-to-day events—such as moving into new spaces at a given rate, and so on. Metaphor often flies just below radar and may have important unconscious effects. Euphemisms, for example, may not just soften meaning but invert it. “Waterboarding” sounds like something you would like to do with your children on a Mediterranean vacation, and “stress positions” the perfect way to end a workout, while all of us could benefit from some good “sleep management.” But each of these, in fact, refers to a form of torture—repeated near-drowning, long-term painful bending and stretching, wholesale sleep deprivation. In the same vein are terms such as “collateral damage” (civilians killed during military operations), “extraordinary rendition” (kidnapping followed by torture), “enhanced interrogation” (torture), “friendly fire” (death at the hands of your own soldiers), and the “final solution” (genocide of European Jews).

There is also something that has been aptly called the euphemism treadmill, in which each new euphemism soon becomes tainted by what it refers to so that a new euphemism must be invented to take its place. “Garbage collection” becomes “sanitation work,” which morphs into “environmental services.” “Toilet” turns into “bathroom” (so you are washing in there), which turns into “restroom” (so you are taking a nap in there). “Slum” to “ghetto” to “inner city,” with “ghetto” making a modest comeback lately as a synonym for lower-class black culture—“he is so‘ghetto.’” It seems as if we are running from the negative connotations of words, with no net progress. The association is soon reestablished, so we have to keep running.

We all know of examples. In my younger days, “retarded” went to “disabled” to “mentally challenged,” and is now a person with “special needs.” “School security guard” is now a “school safety agent.” The other day a phone “operator” told me he was an “information assistant.” Not quite sure how much elevation he thereby achieved, but notice that the euphemism is longer than what it replaces, as often happens—in other words, this enterprise is trending in the wrong direction, at least where efficiency is concerned.