Consider the fluency effect I mentioned earlier. If you were debating whether to invest in a stock, you’d certainly take a look at the industry, the business climate, and the financial details of a company before deciding if you should put your money behind it. Low on any rational thinker’s list, we probably agree, would be the ease with which you can pronounce the company’s name. If you let that affect your investment decision, you probably have relatives scheming to seize control of your nest egg on the grounds that you are mentally incompetent. Still, as we saw with typefaces, the ease with which a person can process information (such as the name of a stock) does exert an unconscious effect on people’s assessment of that information. While you may find it plausible that the fluency of information might affect people’s judgment of a recipe for a Japanese dish, could it really affect a decision as important as choosing an investment? Do companies with simple names do better than companies whose names are tongue twisters?
Think about a firm preparing for an initial public offering (IPO). Its leaders will make a pitch regarding the company’s wonderful future prospects, and they will back up that pitch with data. But privately held companies are usually far less familiar to prospective investors than companies that are already on the exchange, and since the newcomers have no long public track record, there is even more guessing than usual involved in this type of investment. To see whether savvy Wall Street traders making real investments are unconsciously prejudiced against companies with hard-to-pronounce names, researchers turned to data concerning actual IPOs. As the graph below indicates, they found that investors were indeed more likely to invest in the initial public offerings of companies whose name or ticker symbols were easy to pronounce than in companies with complicated names or symbols. Notice how the effect fades over time, which is to be expected, because with time firms develop both a track record and a reputation. (In case the effect also applies to books and authors, please take note of how easy it is to pronounce my name: Ma-lah-DI-nov.)
Researchers have found other factors irrelevant to finance (but relevant to the human psyche) that affect stock performance. Take sunshine. Psychologists have long known that sunshine exerts subtly positive effects on human behavior. For example, one researcher recruited six waitresses at a restaurant in a shopping center in Chicago to keep track of their tips and the weather over thirteen randomly chosen spring days. Customers were probably unaware that the weather influenced them, but when it was sunny outside, they were significantly more generous.27 Another study produced a similar result concerning the gratuities received by a waiter delivering meals to guests’ rooms in an Atlantic City casino.28 Could the same effect that induces customers to give an extra buck to a waiter for bringing them curly fries also apply to sophisticated traders evaluating the future earnings prospects of General Motors? Again, the idea can be tested. Much of the trading on Wall Street is, of course, done on behalf of people who reside far from New York, and investors are located across the country, but the trading patterns of agents in New York City have a significant effect on overall New York Stock Exchange performance. For example, at least before the global financial crisis of 2007–8, much of Wall Street’s activity was due to proprietary trading—that is, big firms trading for their own accounts. As a result, plenty of money was traded by people who had occasion to know whether the sun was shining in New York—because they lived there. And so a finance professor at the University of Massachusetts decided to look into the relationship between local New York City weather and daily changes in the indices of stocks traded on Wall Street.29 Analyzing data from between 1927 and 1990, he found that both very sunny and totally cloudy weather influenced stock prices.
You would be right to be skeptical of this. There are inherent dangers in what is called data mining, the wholesale sifting through data in the hope of discovering previously unrecognized patterns. According to the laws of chance, if you look around enough, you are bound to find something interesting. That “something interesting” may be an artifact of randomness or a real trend, and telling the difference between the two can require considerable expertise. The fool’s gold in data mining is the statistical correlation that appears surprising and profound, even though it is meaningless. In the case of the sunshine study, if the connection between stock price and weather were a coincidence, one would probably find no such correlation in the data regarding stock markets in other cities. And so another pair of researchers repeated the earlier study, looking at stock market indices in twenty-six countries from 1982 through 1997.30 They confirmed the correlation. According to their statistics, if a year had included only perfectly sunny days, the market return of the New York Stock Exchange would have averaged 24.8 percent, while if a year had been made up of completely overcast days, it would have averaged only 8.7 percent. (Unfortunately, they also found that there is little or nothing to be gained from buying and selling according to this observation, because the large number of trades required to keep up with the changing weather would eat up your profits in transaction costs.)
We all make personal, financial, and business decisions, confident that we have properly weighed all the important factors and acted accordingly—and that we know how we came to those decisions. But we are aware of only our conscious influences, and so have only partial information. As a result, our view of ourselves and our motivations, and of society, is like a jigsaw puzzle with most of the pieces missing. We fill in blanks and make guesses, but the truth about us is far more complex and subtle than that which can be understood as the straightforward calculation of conscious and rational minds.
WE PERCEIVE, WE remember our experiences, we make judgments, we act—and in all of these endeavors we are influenced by factors we aren’t aware of. We’ll run into many more examples of this in the pages that follow, as I describe the different aspects of the unconscious brain. We’ll see how our brains process information through two parallel tiers, one conscious, the other unconscious, and we’ll begin to recognize the power of the unconscious. The truth is that our unconscious minds are active, purposeful, and independent. Hidden they may be, but their effects are anything but, for they play a critical role in shaping the way our conscious minds experience and respond to the world.
To begin our tour of the hidden areas of the mind, let’s consider the way we receive sensory input, the conscious and unconscious pathways through which we absorb information about the physical world.
CHAPTER 2
Senses Plus Mind Equals Reality
The two-tier system of the brain … how you can see something without knowing it