18 Sep Diversity of opinion
Image from Visual Hunt
While attending a recent conference, delegates were asked to identify what they thought were the most likely threats to global stockmarkets. While the group of around 50 came up with a fairly long list which covered a pretty wide range of possibilities, some of them more obvious than others, it was interesting how much common ground there was between the different tables. Unsurprisingly, concerns over the UK’s membership status with the EU, the possibility of a US trade war with China and a perceived expansionist Russia were common themes.
It is well known that individuals may not be terribly good at solving problems individually. Yet when they are combined in a group, as illustrated in James Surowiecki’s book ‘The wisdom of crowds’, the collective view can prove surprisingly accurate.
Yet I also found myself pondering whether the group gathered in the room was sufficiently representative to give us the true wisdom of a crowd. If the same question had been asked of a group of, for example, UKIP members, Trump voters or Russian or Chinese nationals, would they have come up with the same list? Maybe their perceptions of the world would have been different to ours and thus they would have perceived a different list of the potential risks. I was surprised to learn that a UK-resident Russian friend holds a view of the Skripal poisonings in Salisbury in March 2018 which is conspicuously in line with the pronouncements of the Russian government on the matter.
By way of example, in 2016 I attended another conference in Washington DC at which around 50 participants were all successful owner-managers of wealth management firms in North America and the UK. Speakers included a former Fed Chairman, a leading US political journalist and a member of the US Congress. All the speakers and members of the audience were apparently well-informed and successful people who might therefore reasonably be expected to have some above average knowledge of the environment in which they operated. Not one of the speakers who talked about the upcoming election or any of the delegates to whom I spoke about it admitted to intending to vote for Donald Trump, knowing anyone who intended to do so or even thinking that he was electable. It’s very easy to find ourselves in an ‘echo chamber’ with people who possess a similar perspective and thus think at least partly in the same way.
During the Cold War, we would regularly see maps of the world produced using the Mercator projection method which showed the Soviet Union as a vast and sprawling country compared to tiny western Europe and it was hard not to see it as a threatening presence. Yet I have also seen a Soviet-produced map showing exactly the same countries but centred on the USSR itself and which therefore resembled this example from Wikipedia:
It showed the Soviet Union at the centre and surrounded on most sides by hostile (or at any rate not particularly friendly) nations. Such a perception clearly and understandably informed the world view of its government. The countries and the borders were identical on both maps. The only differences were the projection type and the point of view. In such circumstances it is not hard to see how someone living there with limited access to alternative information might adopt the same approach to the rest of the world.
In the age of the internet, with the USSR long disappeared into history, it is easier than ever to access diverse points of view. Yet just because people have easy access to it does not mean that they use it. It is very easy to find ourselves drawn into communicating with ‘people like us’ because it is just easier and less stressful than engaging with someone who will always argue with us. It then no great leap to adjust the facts to match our own perception and ultimately to believe that we therefore have evidence to validate that perception.
Even so, as long as the participants in a group are interested in reaching a more accurate consensus rather than being controversial, it seems that even polarised groups can improve their accuracy by exchanging information with each other. A recent US study by Joshua Becker asked separate groups of Democrats and Republicans factual questions such as ‘How much did unemployment change during Obama’s administration?’. Even though there was a correct answer to each question, the selection was deliberately of contentious topics. Participants were then offered the opportunity to vary their answers when told how other participants had responded. Even though the groups did not directly interact with each other, the researchers found that individual beliefs became 35% more accurate after exchanging this information.
Of course, public markets in any traded assets necessarily incorporate the views of all market participants and this is what enables them to be effective at setting prices at which there is both a willing buyer and a willing seller. While such participants are not selected on any scientific basis, they all come with their own biases, attitudes and goals and they are influenced by those in their behaviour but across the huge group, those tend to cancel out. Given the number of people (in much smaller groups) who are trying to determine where the markets will go next, we shouldn’t be hugely surprised when, as often happens, they turn out to be wrong.