The Rational Investor #014: Michael Mauboussin on Surprising Influences
Happy Saturday to you,
Welcome to the 14th edition of The Rational Investor Newsletter.
Today’s quote comes from the excellent book Think Twice by Michael Mauboussin. This book talks about the surprising forces that impact the decisions that we make—most of the time without us even realizing we’re being influenced. The story I’m sharing today is one such example of many and I have some brief commentary to follow.
The only change to the quote is that I broke it up into shorter paragraphs to make it more readable for this email. :)
Onto the main event…
Here’s Michael Mauboussin on Surprising Influences:
Imagine strolling down the supermarket aisle and coming upon a display of French and German wines, roughly matched for price and quality. You do some quick comparisons, place a German wine in your cart, and continue shopping. After you check out, a researcher approaches and asks you why you bought the German wine.
You mention the price, the wine’s dryness, and how you anticipate it will go nicely with a meal you are planning. The researcher then asks whether you noticed the German music playing and whether it had any bearing on your decision.
Like most, you would acknowledge hearing the music and avow that it had nothing to do with your selection.
This scenario is based on an actual study, and the results reveal the chapter’s first mistake: belief that our decisions are independent of our experiences.
In this test, the researchers placed the French and German wines next to each other, along with small national flags. Over two weeks, the scientists alternated playing French accordian music and German Bierkeller pieces and watched the results.
When French music played, French wines represented 77 percent of the sales.
When German music played, consumers selected German wines 73 percent of the time.
The music made a huge difference in shaping purchases. But that’s not what the shoppers thought.
While the customers acknowledged that the music made them think of either France or Germany, 86 percent denied the tunes had any influence of their decision.
You may be wondering, “What does this have to do with investing?”
The answer is, “Everything.”
People watch the news (financial and otherwise) believing that they are “staying informed.” But what is actually happening, completely unbeknownst to them, is they are being subconsciously programmed to make poor decisions.
Think about this: The media operates in only two modes.
The primary mode is that of negativity and turmoil with flashing red text across the screen.
The secondary mode is that of mania.
Given the extreme nature of the media’s offerings—it’s the best way to get more eyeballs and sell more advertisements—and the research noted above from Think Twice, how could anyone believe that they could watch these shows and NOT be influenced to make decisions they wouldn’t have otherwise made?
I think the answer to that question is obvious. It’s not possible. It may take longer for some than for others, but the influence is unavoidable.
For anyone who is still a believer that they can manage the chaos, I recommend you immediately head over to Amazon to buy Mauboussin’s book!
Thanks for reading. I’ll be back again next week with more timeless wisdom from great investors.
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