Suppose you’re hosting a dinner party and head to the store to pick up some wine. You compare a few French and German bottles and settle on a French one.
On your way out, a researcher stops you to ask why you chose it. You might say the price, the label, or how it’ll pair with what you’re cooking.
Next, the researcher asks whether you noticed the French music playing in the background.
It turns out that during this experiment, when French music played, French wines made up 77 percent of sales. And when German music played, German wines sold 73 percent of the time. Yet, 86 percent of shoppers said the music had no influence on their decision[1].
Daniel Kahneman ran a different kind of experiment[2]. He had participants write down the last four digits of their Social Security number before estimating the number of physicians in Manhattan. Interestingly, people with higher Social Security numbers estimated 30 percent more physicians than those with lower numbers.
Here’s one more:
Harvard psychologist Daniel Gilbert ran a study in which participants were shown thousands of colored dots—ranging from clearly blue to clearly purple—and asked to identify the blue ones. At first, it was easy. Then the researchers gradually reduced the number of blue dots, and something strange happened: participants started calling purple dots blue. Even when warned and incentivized to stay consistent, the effect persisted[3].
The researchers called it “prevalence-induced concept change.” In the real world, this “blue dot effect” means that when genuine problems become scarce, we unconsciously go looking for new ones to take their place, even if they may not be real problems.
In other words, we don’t necessarily experience the world as it truly is. Instead, our perception of the world is influenced by the information we consume, both consciously and unconsciously, and whether it’s relevant information or not. In the examples above, it’s the background music, random numbers we anchor to, or the blue dots.
In light of these studies, we should probably assume that the 24/7 news cycle of constant pessimism will adversely impact our long-term decision-making. Right now, our “background music” includes the potential for an expanding war with Iran, the ongoing uncertainty of tariffs, and the idea that AI is either going to transform the economy or displace half the workforce.
These issues—and others like them—invariably influence our decisions because they all feel too significant in the moment to be long-term meaningless, even if that’s what they’re likely to become[4]. We can see how headlines like these can impact our perspective by looking to the past.
Shortly after the pandemic, Derek Thompson[5] wrote a piece about the economy titled “Everything Is Terrible, But I’m Fine.” He highlighted how most people’s day-to-day lives were quite satisfactory, yet they still believed that the world around them was falling apart. It seems that when we’re constantly told the world is in dramatic decline, it’s quite easy to be convinced that it must be true, even when our own experience says otherwise.
To be clear, we’re not trying to minimize the events that lie before us. They are very real issues, but they can also distract us from the undeniable progress happening in the world around us[6]. Not to mention, they distract us from the good things happening in our own lives.
So how do we push back? How can we see things more clearly? And how can we make better decisions?
For starters, awareness is a genuine antidote. The more aware we are of things that might negatively influence our decision-making, the better decisions we’ll hopefully make.
With this in mind, we should be very intentional about what we consume. If our inputs shape our outputs, then headlines probably deserve very little of our attention—and history, much more.
Lastly, here’s something worth always keeping in mind: The financial news doesn’t exist to make you a successful investor. Its business is advertising. Once you see this for what it is, it becomes much easier to see through the sensationalist headlines.
As always, we hope this note (and all our notes) provides some much-needed perspective.
Stay the course.
- [1] Think Twice by Michael Mauboussin
- [2] Spencer Tom
- [3] Daniel Gilbert & Clipping Chains
- [4] History would suggest that these events will become footnotes in time sooner than we might imagine.
- [5] The Atlantic – Paywalled
- [6] Fix the News; Doomslayer
*Material created by Money Visuals, LLC, an independent third party not affiliated with Raymond James.
Any opinions are those of the author and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions, or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Past performance is not indicative of future results. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.
