The Hindu Business Line : In astrology, we believe

My friend regularly reads a column on astrology that comes in one of his favourite newspapers. Recently, he sold most of his equity investment because the column mentioned that he was likely to pass through a bad phase. Classical economists may deem his act irrational. Behavioural psychologists will, however, attribute my friend’s behaviour to the Forer Effect. What is it?

It refers to people’s tendency to rate personality statements as highly accurate without realising that the same statement may just as well be applicable to anyone else.

Professor Forer, a psychologist, conducted experiments to find out why people believed in astrology. In one such experiment, he gave a personality test to his students. A week later, he handed a sheet of paper that contained a description of each student’s personality based on their test scores.

Personality evaluation

The students found Forer’s personality evaluation to be good and fair. What was intriguing was the way he did the evaluation. He ignored their answers to the personality test and simply gave all the students the same description. And that description was merely some vague and general statements collected from various astrology magazines!

Forer experiments indicate that it is not important for fortune tellers or astrologers to be accurate. Instead, giving people some general statements about their personality is enough because their brains trick them into believing that the statement is insightful.

The students’ behaviour to the personality descriptions came to be known as the Forer Effect. Psychologists argue that Forer Effect partly explains why people believe in graphology, astrology and other forms of fortune telling.

Economic implications

This behaviour has economic implications. People like my friend take economic decisions based on astrology. And there are traders who buy and sell shares based on financial astrology. This refers to technical studies that forecast stock prices based on planetary movements. Or, claims that the date of a company’s formation may drive its financial performance.

It is not for me to say whether astrology or financial astrology works. But do remember the Forer Effect if you will.

(The author is an investment strategist.)

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