The Hindu Business Line : Seeing is believing

My friend wanted to buy a certain model car. As luck would have had it, he overheard two people talking about that car at a restaurant just a day before his scheduled visit to the showroom. One of them was mentioning the problems that he had with the car. When my friend left the restaurant, his belief level had changed — he decided not to buy the car. Why?

Psychologists call this the “vividness bias”. What we see, hear or perceive, directly has a greater impact than the information received from second-hand sources including statistics.

First-hand experience

My friend was led to several Web sites that posted positive customer reviews on the car. Yet, his personal experience of overhearing a customer seems to carry more evidence than the online reviews.

Psychologists refer to this as the “man-who” syndrome. That is, we always know a man “who” bought the car and was unsatisfied. Or we know a man “who” ate only junk food, refused to exercise, and yet did not add any flab to his belly!

Getting misled

Research has been conducted to show how we often get misled by our own observations. In one experiment, medical staffs’ reaction to a certain report on how smoking can lead to cancer was examined. The conclusion from the study is stunning.

Doctors knew about the report and the problems caused by smoking. Yet, the likelihood that a doctor continued to smoke was directly related to the distance of the doctor’s specialty from lungs.

Radiologists, who were continually exposed to lung x-rays had low rate of smoking, as did physicians who treated lung cancer patients. Others continued to smoke! Even doctors are more influenced by their personal experiences than by valid statistical data.

It is the same with investments. No amount of information could convince traders that the market in late 2007 was suffering from stretched valuations. Those who did not trade in 2000 could not fathom the pain of a crash. They had to experience it first-hand this January. Now, they know. Seeing is believing.

(The author is an investment strategist.)

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