Choose Your Own Adventure: More Proof That Everyone Is Right!

Last week, I wrote about how equally smart people can cherry-pick their own data and metrics to prove whatever point they want to make, even exact opposite ones.

I found another example this morning.

A few weeks ago I spoke with investor Chris Martenson, who is deeply bearish on the economy and markets. His rationale is simple. "Higher taxes and high gasoline prices are all but a few reasons why author and economic researcher Chris Martenson foresees the stock market likely to plummet within the coming months," an email he sent around notes.

Got it? Higher gas prices and higher tax burdens will sink the economy.

Then this morning I read this, from economist Jim O'Sullivan: "Gasoline prices have continued to decline and [tax] refunds have continued to show catch-up after this year's slow start."

Got it? Lower gas prices and lower tax burdens will boost the economy.

Everyone gets to use their own data, and everyone is right!

The problem is that both Chris and Jim really are right. Gas prices are higher than they were last fall, but lower than they were last month. Making the case that gas prices are rising or falling is just a matter of picking a start date that suits your argument:

Source: EIA.

It's the same with taxes. Some can say taxes are rising after the payroll tax cut expired. But you can also point out that federal taxes as a percent of GDP are far lower now than they were in the early 2000s, and thus the trend is toward lower taxes. Pick your starting point, and you get to make whatever argument you want.

If this cherry-picking is so obvious, why do we gobble up predictions with glee? Psychologist Philip Tetlock once wrote: "We need to believe we live in a predictable, controllable world, so we turn to authoritative-sounding people who promise to satisfy that need." It's almost like we don't care if forecasters are right. We just want them to reinforce our feelings.

The more I think about this, the clearer it becomes that in order to form a clear view of the economy and investments, you must:

  • Choose who you listen to carefully. Perma-bears or perma-bulls can (and will) make their arguments regardless of circumstances.
  • Always go out of your way to hear the other side of the story.
  • Realize that the vast majority of predictions are emotional marketing ploys.

Good luck. 


Read/Post Comments (0) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2365832, ~/Articles/ArticleHandler.aspx, 11/26/2014 4:32:41 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement