Episode 361: Alex Edmans - Finding "The Truth" in Economics, Finance, and Life
The Rational Reminder Podcast
The Allure of Confirmation Bias in Economic Perspectives
This chapter delves into the concept of confirmation bias, illustrated through the analogy of accepting candy from strangers, to show how people favor information that confirms their beliefs. The discussion ends on a positive note, expressing gratitude for the exchange of insights in economics and finance, along with a crucial disclaimer about investment responsibilities.
Today, Ben plays lone host for the first time as we welcome Alex Edmans to the show. Alex is a Professor of Finance at London Business School as well as an accomplished speaker, author, investment banker, and financial advisor. To start, Alex describes his involvement in the formation of a new law in the UK before defining ‘misinformation’ and where confirmation bias fits in. Then, we assess the impact severity of confirmation bias, biased search versus biased interpretation, the role of generative AI in confirmation bias, and the levels of susceptibility within confirmation bias. We also explore the role of black-and-white thinking in concealing the truth, Alex’s Ladder of Misinference as seen in May Contain Lies, the 10,000-hour rule and other famous statements of misinformation, and how the idea of a narrative may influence how people interpret and misinterpret facts. We end with how to guard against the plague of data mining in research, data as evidence and what this implies for evidence in financial economics, and Alex shares helpful advice for determining truth in any circumstance.
Key Points From This Episode:
(0:03:27) Alex Edmans walks us through the erroneous evidence that influenced a new UK law.
(0:07:13) Misinformation; living in a post-truth world; and where confirmation bias fits in.
(0:12:06) The severity of confirmation bias, and biased search versus biased interpretation.
(0:18:19) Unpacking generative AI and the susceptibility thresholds of confirmation bias.
(0:21:25) How black-and-white thinking makes the truth more elusive.
(0:25:40) Understanding Alex’s Ladder of Misinference as seen in May Contain Lies.
(0:28:17) Debunking the 10,000-hour rule and other enduring statements of misinformation.
(0:38:10) The second step on the Ladder of Misinference: Why facts are not data.
(0:42:42) How the idea of a narrative influences how people interpret or misinterpret facts.
(0:44:25) Why data is not evidence, and examining the plague of data mining in research.
(0:48:36) Guarding against data mining and the consequences of investing with misinformation.
(0:53:01) When data is evidence, and what this says about evidence in financial economics.
(0:55:49) Why evidence may not be proof.
(0:59:14) Practical advice for seeking the truth for important decisions and in everyday life.
Links From Today’s Episode:
Meet with PWL Capital — https://calendly.com/d/3vm-t2j-h3p
Rational Reminder on iTunes — https://itunes.apple.com/ca/podcast/the-rational-reminder-podcast/id1426530582. Rational Reminder Website — https://rationalreminder.ca/
Rational Reminder on Instagram — https://www.instagram.com/rationalreminder/
Rational Reminder on X — https://x.com/RationalRemind Rational Reminder on TikTok — www.tiktok.com/@rationalreminder
Rational Reminder on YouTube — https://www.youtube.com/channel/
Rational Reminder Email — info@rationalreminder.ca Benjamin Felix — https://pwlcapital.com/our-team/
Benjamin on X — https://x.com/benjaminwfelix
Benjamin on LinkedIn — https://www.linkedin.com/in/benjaminwfelix/
Alex Edmans — https://alexedmans.com/
Alex Edmans on LinkedIn — https://www.linkedin.com/in/aedmans
Alex Edmans on X — https://x.com/aedmans
London Business School — https://www.london.edu/
Fulbright Fellows | MIT — https://ir.mit.edu/projects/fulbright-fellows/
Atkins — https://www.atkins.com/
‘Matthew Walker's “Why We Sleep” Is Riddled with Scientific and Factual Errors’ — https://guzey.com/books/why-we-sleep/
‘Grit: The Power of Passion and Perseverance | Angela Lee Duckworth | TED’ — https://www.youtube.com/watch?v=H14bBuluwB8
Books From Today’s Episode:
May Contain Lies — https://maycontainlies.com/
Grow the Pie — https://mybook.to/Grow-the-Pie
Outliers — https://www.amazon.com/Outliers-Story-Success-Malcolm-Gladwell/dp/0316017930
Why We Sleep — https://www.goodreads.com/book/show/34466963-why-we-sleep
Start with Why — https://www.amazon.com/Start-Why-Leaders-Inspire-Everyone/dp/1591846447
Grit — https://www.amazon.com/Grit-Passion-Perseverance-Angela-Duckworth/dp/1501111108
Papers From Today’s Episode:
‘CEO-Employees Pay Ratio, Employees’ Productivity and Firm Performance: Evidence from UK’ — https://www.researchgate.net/publication/391787593_CEO-Employees_pay_ratio_employees'_productivity_and_firm_performance_evidence_from_UK
‘A Theory of Fair CEO Pay’ — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4294589
The AI-powered Podcast Player
