How to Be a Skeptic—The Right Way: Part IIISubmitted by Bernhardt Wealth Management on August 31st, 2020
In the second article of this series, one of the last points we made was that, since we know marketers, journalists, and social media posters use emotional “hot button” words to provoke us into action, it’s important, especially where our investment decisions are concerned, to notice when a particular piece of information gets a strong emotional reaction from us. We noted that when this happens, the best course of action, rather than simply following where our emotions lead, is to pause, reflect, and do some research of our own to determine the source and accuracy of the information we are responding to. In other words, we need to perform due diligence.
But how do you do that? The good news is that you don’t have to be a trained economist or financial analyst to look before you leap at emotion-triggering misinformation. Here are five common-sense “do’s” and “don’ts” for doing your best fact-finding and due diligence.
- Remain positively skeptical. In the courthouse, a defendant is presumed innocent until proven guilty. When managing information overload, we recommend you default to exactly the opposite: When in doubt, remain in doubt until you’ve done your due diligence. At the same time, watch out for your own confirmation bias. If you want something to be true, you’ll be more inclined to believe it is. Likewise, if you wish something weren’t so, you’ll assume it probably isn’t.
- Question the motives. Remember this quote from the website, Common Sense Media: “All media shares one thing: Someone created it. And it was created for a reason. Understanding that reason is the basis of media literacy.” In other words, everything you see, hear, or read is driven by someone’s incentive for sharing it. Four potential motivations for sharing information are self-interest, malicious intent, financial gain, and/or genuine altruism. Determining which motivations are most likely at play suggests how readily to accept a claim as the whole truth, and nothing but. At the same time, be on guard for familiarity bias. We all take mental shortcuts to more quickly trust people who are familiar to us, whether or not our trust is well-placed.
- Consider the source. Motivation aside, does the source actually know what they’re talking about? If they’re sharing their own insights, do they have the credentials and/or experience to be accurate and objective about the subject matter? If they’re reporting others’ insights, have they first done their own due diligence? Is their “evidence” fact-based, first-hand, and objectively considered? Or is it opinionated, emotionally charged, and largely circumstantial? And don’t forget: watch out for blind-spot bias. We can more objectively spot others’ behavioral biases than we can recognize our own. This is one reason why even a well-intended individual may be unaware of their own misperceptions.
- Repetition does not equal reality. Believe it or not, simply repeating a lie can make it more believable. Citing a pair of studies from the Journal of Experimental Psychology, a Wall Street Journal columnist noted, “When people hear a false claim repeated even just once, they are more likely to let it override their prior knowledge on the subject and believe it.” This all too real “illusory truth effect” explains how effective marketing campaigns often work. It also explains how we can fall for fast-moving falsities, whether unwittingly or intentionally repeated. Also, watch out for hindsight bias. Hindsight bias tricks us into altering our memories to reflect current reality. In other words, once you decide to believe a repeated claim, you may forget you didn’t believe it the first time.
- Take your time. Especially in money management, anything that is important today will still be important tomorrow. Take your time, ask critical questions, and ensure you understand the ramifications before you make any move. Utilize an extra layer of caution around any claim or story that asks you to “act now, before it’s too late!” The same applies when sharing tantalizing social media posts. If something strikes you as either outrageous or too good to be true, avoid getting caught up in the heat of a moment, lest you accidentally fan the flames of an illusory truth. In this connection, it’s important to watch out for herd mentality. Herd mentality intensifies our greedy or fearful reactions to breaking news. We are prone to run in whatever direction everyone else is headed.
Of course, nobody can research every claim they come across. There are only so many hours in the day! So, what are some practical steps for efficiently differentiating fact from fiction? One way we help our clients do this is by providing academically tested, peer-reviewed research based on proven observation and verifiable facts. If we can help you in your quest to separate fact from fiction, please contact us. To read the first article in this series, “How to Be a Skeptic—The Right Way: Part 1,” please click here.