The Backfire Effect
The Misconception: When your beliefs are challenged with facts, you alter your opinions and incorporate the new information into your thinking.
The Truth: When your deepest convictions are challenged by contradictory evidence, your beliefs get stronger.
So how does this work?
Once something is added to your collection of beliefs, you protect it from harm. You do it instinctively and unconsciously when confronted with attitude-inconsistent information. Just as confirmation bias shields you when you actively seek information, the backfire effect defends you when the information seeks you, when it blindsides you. Coming or going, you stick to your beliefs instead of questioning them. When someone tries to correct you, tries to dilute your misconceptions, it backfires and strengthens them instead. Over time, the backfire effect helps make you less skeptical of those things which allow you to continue seeing your beliefs and attitudes as true and proper.
You can see these effects in politics and in economics. You can see it investing as well; certainly as the housing bubble was live there was no dissuading people that the housing bets were rational and safe. I have had my own run ins with this as well. What is fascinating is how we are able to take in information which objectively disproves our thinking and yet come away even more convinced of our thinking as a result. Genius!
Note this about suspension of disbelief and information processing:
What Gilbert, Petty, and Montier have demonstrated is that human beings have to suspend disbelief to process information and make judgments based on that information. Unfortunately, distractions (think bread and circuses) can lead people to believe something is true when in fact it is not – with grave implications for investing.
However, that’s not what happens with strongly-held beliefs at all. I remember talking to my mother about the Montier post, asking her about her own strongly held views on religion. Her answers were interesting because it demonstrated to me an unwillingness to even process information that ran counter to her most cherished and strongly-held beliefs. She admitted this interpretation was correct when we discussed it afterward. Remember what Montier said "in order for somebody to understand something, belief is a necessary precondition." The point was that she didn’t even process the information – such an existential threat it was to her.
Human beings have a very clear view of self and this is strongly intertwined with a belief system which generates what we describe as core values. So, if you attack those core values, you are likely to get an irrational and reptilian response. There is no processing of information
I was perplexed by this refusal to relinquish strongly held views until the backfire effect put a name and process to the experience.
Has anything you have learned on finance blogs changed your strongly held beliefs about the economy, asset markets, the financial system and how they works? Or have you been seeking out those blogs most ideologically aligned with your pre-conceived world view? How do you think the backfire effect will impact the current debates on quantitative easing, austerity, and the situation in Greece?
My take: Be optimistic! Pendulum swings in policy and ideology are a product of people without conviction on issues taking sides. In today’s context, political and ideological battle lines will harden. Eventually, someone will win these policy battles and policy will tilt one way. Afterwards, one side or the other will be proved right by events. And then we can start all over again with the backfire effect because you can’t disprove a negative. But, those in the middle who lacked conviction about the outcome, who didn’t have a strong view will be convinced by the empirical evidence and they will move the ball forward, backfire effect notwithstanding.