I'm going to wade - perhaps unwisely - into some fraught and controversial territory with this post, but I can't help myself because I think there are so many interesting things to be learned from the ongoing Kavanaugh saga with respect to the psychological fallibility of humankind. And, believe it or not, it does have investment implications.
It is widely believed by economists that human beings are rational, and yet a large body of psychological evidence, as well as simply an observation of human affairs, reveals that human beings are often incapable of even the most elementary of rational and logical thinking in an emotionally charged atmosphere. Even when emotions are not involved, studies have shown people to be to some extent irrational, but in these cases the deviations from standard rationality are relatively minor, and there is more capacity for people to learn how to think and reason better, and correct for these cognitive errors over time. However, it is when emotions are involved that we see the most egregious departures from the most basic principles of logical thinking - even amongst otherwise very intelligent people - and the forces of irrationality here are systemic, intractable, and unable to be corrected.
For instance, immediately after the Ford allegations broke in the media (and Kavanaugh's response), Vox posted the following video, stating that powerful men who have perpetrated sexual assault follow a typical five-step process, including denial, appeals to credibility from people they know, and questioning the motives of the accuser. Kavanaugh was following a similar template, and the clear implication was that he was the latest in a long line of culpable perpetrators.
And yet even a moment of dispassionate reflection by Vox - irrespective of one's views on the merits of the Kavanaugh case - would have revealed that this is exactly the course of action you would reasonably expect somebody genuinely innocent and falsely accused to take as well. Someone falsely accused could also be reasonably expected to deny the allegations, make appeals to their character, and question the motives of who was accusing them and why. That doesn't imply or prove Kavanaugh is innocent, but that's my whole point - his response didn't prove or imply anything at all about the merits of the case, and yet in Vox's interpretation, his response somehow constituted evidence of his culpability. Vox also omitted to mention that many people accused in the #metoo movement have in fact admitted to and apologised for past incidents, rather than denied them (e.g. Lewis CK).
I can't think of a clearer example of the wholesale abandonment of abstract logic, and merely seeing what one wants to see, and interpreting events in a manner that conforms to one's preconceptions, assumptions, and world view. Vox is not run by stupid people. They are smart. But they are demonstrating here how hard it is for even intelligent people to see the most obvious of logical fallacies in their position in an emotionally-charged atmosphere.
Another set of clear fallacies emerging in the public dialogue (or stifling of public dialogue) is the unwitting substitution of a harder question for another, easier, but unrelated question. The correct (harder) question that should be asked is "after hearing from both sides and considering the evidence adduced, is there a sufficient basis to believe these events may have happened, such that Kavanaugh's nomination should be delayed or rejected?". Instead, the easier question being substituted is, "do you think sexual assault or violence against women is a bad thing?". This is a great example of the 'bait and switch' fallacy discussed in the excellent book Superforecasting.
Because people are emotionally charged about this issue, they are unable to see this less-than-subtle shift in the underlying question, but it's a very important shift, because it means someone that answers the initial question "no" - possibly for very good reason, grounded in the insufficiency of the evidence adduced - can then be labelled as having answered the second question "no". This then exposes the person to tremendous media/political fallout for not taking a hard line against sexual violence, or in some way showing insensitivity towards sexual assault victims, which is a clear non sequitur that anyone who has studied Logic 101 would be able to easily identify.
This fallacy was on clear display after Republican Jeff Flake, who was initially undecided, said that after hearing the evidence he had decided to support Kavanaugh. He was subsequently confronted by angry mobs of sexual abuse survivors, who yelled "you're telling women they don't matter". This latter group had substituted the easier question for the harder question. The political fallout has required Flake to retract his support pending an FBI investigation.
Thirdly, the case has demonstrated the power of confirmation bias. A generation of liberals have been educated to look at people based on their class/group identity, and to believe that powerful white men are, as a group, power-abusing scumbags. We have also seen a lot of genuinely abhorrent conduct emerge in the #metoo movement, which has been rightfully condemned. There is therefore a strong pre-existing inclination to believe that any and all accusations that come forth are probably true, and therefore an unwillingness to look at contrary evidence. People are therefore quite happy to quickly and unequivocally state "we believe you", without any critical examination of the counter-evidence.
The general #metoo sentiment makes it very difficult for many people to consider this individual case on its own merits in a balanced way - something that the most rudimentary principles of justice and fairness ought to require. Simple dispassionate logic would acknowledge that the fact that Harvey Weinstein or Bill Cosby behaved reprehensibly, does not automatically make allegations against Kavanaugh true. Nor does the fact that an individual was personally subject to an unrelated sexual assault automatically make Kavanaugh guilty. But people are not willing to entertain these trite logical notions. Confirmation bias is a powerful force that makes people believe what they want to believe.
Fourthly, and somewhat separately, this case highlights people's lack of understanding of the corrupting power of incentives. Sexual assault is a serious crime, and can be traumatic for victims, which often delays the reporting of crimes for good reason. And it is sometimes a difficult crime to prove, which makes applying the typical standards of criminal evidence much more difficult. For good reason, we have therefore shown compassion and understanding towards sexual assault victims, and lowered the typical standards of necessary proof as as result.
However, history has shown that whenever any group in society is given a significant amount of power, that it can become corrupted and liable to abuse. Society tends to believe allegations of sexual assault, because most of the time that is the correct and compassionate course of action. But anyone with a rudimentary understanding of the corrupting power of incentives would understand that if you grant people the power to destroy someone's career and reputation on the basis of an unsubstantiated allegation alone (and particularly where anonymity is allowed, and where there are no legal or reputational repercussions for making false accusations), that it is only a matter of time before someone, somewhere attempts to abuse this power for political gain, or out of sheer vindictiveness.
People that really care about justice, as well as truly care about protecting the victims of genuine sexual assault, should therefore be very interested in guarding against the misuse of this power. If one or several instances of high-profile fake allegations emerge and are proven, this will actually set back the cause of protecting women from sexual violence by several decades, because it will undermine society's willingness to believe genuine victims that come forward in the future. This would be a terrible outcome, and is not something that has been considered by those willing to take any and all allegations on face value alone.
The correct approach is to treat each and every claim on its own merits, and consider the evidence adduced before rushing to judgement, and to particularly do this when it is a situation where there are clear incentives for the power to be misused (e.g. for political gain). This is not a matter of not taking sexual assault seriously - the Kavanaugh allegations have been taken incredibly seriously, and rightly so. It's about there being a fair and balanced process, and a willingness to look at each case on its own individual merits.
In the present case, there is not only an absence of evidence corroborating Ford's story, but a lot of evidence contradicting it. All four persons identified by Ford as having been present at the party, including one she described as a lifelong friend, have denied ever attending such a party. Ford claims she was driven to and from the party by someone, but is unable to identify that person or get them to confirm they did in fact take her there and back. Her current testimony contradicts her therapist notes (which said it happened sometime in the mid-80s and four men were present in the room, and didn't mention Kavanaugh, and is now claiming it happened specifically in the summer of 1982 and two men were present, including Kavanaugh), and Ford withheld these notes from journalists. And literally hundreds of women who have been lifelong friends of Kavanaugh have come out vocally in support of him and his character and past behaviour, suggesting that the women who know him best - hundreds of them - believe this accusation to be wholly out of character.*
No thinking person could believe that these allegations are a sufficient basis for declaring Kavanaugh guilty and ineligible for the Supreme Court. And yet it is remarkable how little these elementary facts and logic matter to so many people, who remain utterly convinced he is guilty. It is a testament to the strength of confirmation bias - it can trump even the most elementary and obvious logic.
Lastly, the episode highlights the power of group/tribal thinking. Being a rational, independent thinker is an asset and is rewarded in certain domains of human endeavour (particularly in the stock market), but in many other areas of human affairs, it is a recipe for being 'ejected from the tribe'. In hunter gather days, being ostracised by the tribe was a virtual death sentence, and so human beings have deep-seated, hard-wired social instincts that drive them to stick with the pack at all costs, and 'tow the tribal line' rather than seek out independent truth. These instincts are so strong that they can easily trump individual thought and rationality. The heretics have been persecuted and subject to lynch mobs throughout history, and this is why people are so averse to stepping outside of the crowd.
How is this relevant to investment?
The above is relevant to the world of investment for several reasons. Firstly, it highlights the degree to which rationality can break down where heightened emotions are involved, and in financial markets, emotions often do run amok. The stakes are high in markets - in the world of investment management, people's jobs, careers, incomes, reputations, and businesses are on the line - and in times of stress, this can trigger emotional responses grounded in self-preservation instincts, that can undermine people's ability to think and act rationally. A large part of Buffett's success over the years has simply been his ability to stay steadfastly rational in a world infused with incurable irrationality.
In addition, the power of group/tribal thinking explains a lot about why people cannot help but cluster closely with the herd in markets. It feels very uncomfortable to stand apart from the herd because the herd can be a vindictive mob and it was a matter of life and death in the past, and our survival instincts trump rationality and logic. This is why markets are likely to forever remain irrational and prone to excesses, because hard-wired emotional instincts don't change. We can educate ourselves as much as we want about the health dangers of eating sugar, but we will continue to eat it anyway, as our preferences are hardwired.
Human beings often believe their logical/rational brain to be the master, but in actual fact it usually functions as the servant. Emotions drive people's choices/preferences, and then the logical/rational brain is used as a means of finding the best ways to gratify or justify these emotional choices. We have seen with this Kavanaugh - many people want him to be guilty, so their rational brains quickly orient themselves and work hard to find reasons to justify this belief, and a similar thing happens in markets, when the market narrative follows the price action. This is because people find intelligent-sounding arguments to justify the investments they intuitively/emotionally would like to make, rather than engage in logical analysis and reach a dispassionate conclusion. Have an intuitive/emotional belief Australian house prices always rise? The logical brain will set to work in finding rationalisations for that emotional belief. And most of the time it will succeed, and will convince people they are buying property for intellectual rather than emotional reasons.
The antidote, to the extent there is one (for many people, the disease is incurable - this is what Buffett means when he refers to 'temperament' - he has long said some people have it and some don't, and it's largely a fixed character trait), is an open mind and facts/data. It is important that people always be aware that they might be wrong, and hence to always be questioning assumptions and pre-existing views, and particularly by actively seeking out and listening to contrary opinions. And it is important to always attempt to verify assumptions/beliefs with hard evidence/data, rather than assuming things to be self-evidently true merely because they feel intuitive to you.
I'm about as optimistic this will happen on a general society-wide basis as I am about the outlook for Tesla's share price - i.e., not very much at all. In markets, that's great news - it means there will continue to be fabulous opportunities for those who can remain rational and open-minded while others lose their heads. In broader society, however, the forces of emotion and stupidity are dangerous, systemic, and intractable, and I do fear for the outlooks for Western democracies sometimes.
LT3000
*Kavanaugh's full opening statement is worth a listen and can be found here
Afterthought
In March, I published a post called "Motivated reasoning and the root cause of intellectual intolerance". A lot of the analysis in that post is very relevant to this discussion.
As discussed in that article, free-thinkers don't believe beliefs are a choice, but rather are an emergent outcome of dispassionate analysis and what the facts suggest is most likely to be true. However, a significant majority of the world treat beliefs more like 'teams', that form part of their identity about what kind of person they would like to be/seen to be. In the Kavanaugh example, there is 'Team Ford', which stands for "we oppose all kinds of sexual violence against women", and there is 'Team Kavanaugh', which Team Ford would say stands for "normalising sexual oppression against women and protecting powerful white men from the consequences of their actions". Notably absent is any discussion or interest in whether the allegations are in fact true or not, or any concern for whether Kavanaugh deserves to have his life, career, and reputation destroyed. He is simply collateral damage in a wider cultural movement.
When the debate is set up this way, it ceases to be a reasoned debate about truth, and instead devolves into something vitriolic and abusive. I have already had two people block me on facebook, for instance, for purportedly normalising sexual violence against women, and 'threatening the safety of my daughters', for merely expressing the opinions above. This emotional reaction, though misguided, is totally understandable for people that believe I'm just trying to be 'Team Kavanaugh'. I expected such a reaction and it is a price I am prepared to pay to advocate the cause of truth and justice. If nobody has the courage to do it, then our society is doomed.
This team-based paradigm is a major problem in our society at the moment and is highly divisive, and also dangerous. There is a notable disregard for the consequences of convicting a potentially innocent person, undermining basic fairness and institutions around the presumption of innocence, and depriving the Supreme Court of the benefit of top legal talent - a court whose decisions affects hundreds of millions of people (while also discouraging other competent people from serving in public office) . I'm not sure what the solution to this problem is, or if there even is one, but this is certainly a very significant problem.
Second afterthought
Having thought about and researched this issue further, I have also come to believe that a subtle but pernicious form of racism and prejudice in the US has also been a fundamental contributor to the Kavanaugh dialogue we have seen thus far. This appears to be a relatively new phenomenon, and something that I was previously unaware had grown to the extent it has.
100 years ago, there was pervasive racism against African Americans in the US. Many people (incorrectly) believed that they were all a bunch of criminals and thieves. Consequently, this racist perspective meant that if an African American was accused of theft, most people would be willing to instantly believe it, irrespective of the facts, evidence, or merits of the individual case, because he was putatively a member of a thieving class, and so he therefore must be guilty.
Something very similar is happening today with respect to white men in the US (especially in positions of power), who are increasingly viewed as nothing but a class of sex offending, lying, power-abusing scumbags. Consequently, in an analogous fashion, many people are quite prepared to believe any and all allegations that emerge, and do not feel it necessary to look at the evidence, because they feel they automatically 'know' he must be guilty, on account of the sins or perceived sins of his class. Without this prerequisite of systemic racism/sexism, the low-quality dialogue we have seen on the Kavanaugh case to date would have been, in my current view, impossible.
The problem with racism is that it judges people as a member of a class, rather than as an individual, and tars them with the same brush as the offenses - real or imagined - of other members of their class, irrespective of the specifics of the case. This is the very definition of prejudice. The fact that one African American stole something does not prove that another African American individual is also a thief, and the exact same thing can be said of white men and sexual assault. But racism promotes this devastating simplifying heuristic.
This whole experience has also helped me to better understand the origins of anti-Semitism. Jews have historically outperformed as a class, on average, in terms of achieving positions of power, authority, and amassing wealth. Given the emergent racism and sexism towards white men that is currently occurring, which partly reflects similar socioeconomic factors, it is therefore quite easy to understand how the politics of resentment have resulted in the frequent persecution of Jews in the past, including - at worst - their wholesale slaughter (I am not Jewish, by the way).
Human beings can be nasty, vile creatures at times - particularly when infused with resentment. It is sad to see that such sentiments are growing, rather than receding, in the 21st Century. Far from becoming more enlightened, we seem to be regressing back into primative, tribalistic mentalities.
