WSJ Book Review: "The Believing Brain"
Money and Finance

WSJ Book Review: "The Believing Brain"


Thanks to Daniel for passing this along.

Superstitions arise as the result of the spurious identification of patterns. Even pigeons are superstitious. In an experiment where food is delivered randomly, pigeons will note what they were doing when the pellet arrived, such as twirling to the left and then pecking a button, and perform the maneuver over and over until the next pellet arrives. A pigeon rain dance. The behavior is not much different than in the case of a baseball player who forgets to shave one morning, hits a home run a few hours later and then makes it a policy never to shave on game days.

Beliefs come first; reasons second. That's the insightful message of "The Believing Brain," by Michael Shermer, the founder of Skeptic magazine. In the book, he brilliantly lays out what modern cognitive research has to tell us about his subject—namely, that our brains are "belief engines" that naturally "look for and find patterns" and then infuse them with meaning. These meaningful patterns form beliefs that shape our understanding of reality. Our brains tend to seek out information that confirms our beliefs, ignoring information that contradicts them. Mr. Shermer calls this "belief-dependent reality." The well-worn phrase "seeing is believing" has it backward: Our believing dictates what we're seeing.

Mr. Shermer marshals an impressive array of evidence from game theory, neuroscience and evolutionary psychology. A human ancestor hears a rustle in the grass. Is it the wind or a lion? If he assumes it's the wind and the rustling turns out to be a lion, then he's not an ancestor anymore. Since early man had only a split second to make such decisions, Mr. Shermer says, we are descendants of ancestors whose "default position is to assume that all patterns are real; that is, assume that all rustles in the grass are dangerous predators and not the wind."

In addition, as evolved social creatures, we have brains that are attuned to trying to discern the intentions of others—and we look for patterns, there, too, and then try to infuse them with human intention and meaning, or what Mr. Shermer calls "agenticity." Patterns in life are variously ascribed to the work of ghosts, gods, demons, angels, aliens, intelligent designers and federal conspirators. "Even belief that the government can impose top-down measures to rescue the economy is a form of agenticity," the author says.

………………..

Book: The Believing Brain





- When Does The Story Break? - By W. Ben Hunt
Link to: When Does the Story Break?The most common question I get from Epsilon Theory readers is when. When does the market break? When will the Narrative of Central Bank Omnipotence fail? To quote the immortal words of Devo, how long can this go on?...

- The 12 Cognitive Biases That Prevent You From Being Rational
The human brain is capable of 10^16 processes per second, which makes it far more powerful than any computer currently in existence. But that doesn't mean our brains don't have major limitations. The lowly calculator can do math thousands of times...

- Morningstar Interview With Jason Zweig
Found via Simoleon Sense. The biggest and most surprising lesson to me came in an experiment that I did at Emory University. It was an example of what Gregory Berns, the neuroscientist who did the experiment, calls "learning without awareness." It turns...

- Mauboussin - Roic Patterns And Shareholder Returns: Sorting Fundamentals And Expectations
Our recent piece, “Death, Taxes, and Reversion to the Mean” 2, aimed to provide context for analysts building financial models by documenting return on invested capital (ROIC) patterns for a large sample of companies. But the report was silent on...

- Applying Behavioral Finance To Value Investing - Presentation By Whitney Tilson
Common Mental Mistakes - 1) Overconfidence 2) Projecting the immediate past into the distant future 3) Herd-like behavior (social proof), driven by a desire to be part of the crowd or an assumption that the crowd is omniscient 4) Misunderstanding randomness;...



Money and Finance








.