‘Oh my goodness,’ exclaimed my wife, ‘there are only 15,568 days left till the end of oil.’
We had just entered the ‘ecologic’ section at Sydney’s Powerhouse Museum and in front of us was a crumpled up car (I think) and a display highlighting the perils of global consumption. It’s a very important message, no doubt, and had clearly hit its mark, but it’s a pity it was achieved with such trickery.
‘I can tell you with great confidence that oil will be around for many millions if not billions of years,’ I explained to my wife. ‘It’s just that it might be very rare and very expensive.’
‘Furthermore,’ I said (you can imagine how much she was enjoying this enlightenment), ‘assuming they’re talking about global peak production of oil, then it’s also no better than a very wild guess.’
Don’t believe everything you read.
But the most interesting thing about all this was how easily people were duped by it. A friend that was with us was also taken in, and I saw others falling for it when I went back to take the picture on the right (no doubt I was lending it some authenticity by taking the picture).
Over Christmas I read Daniel Kahneman’s excellent book Thinking, Fast and Slow, following the recommendation from Intelligent Investor Value Fund‘s Steve Johnson in our National Tour last October (if you were unable to make it along, there’s a video on our website here).
In the book, Kahneman explains how our brain operates on two levels. First to act is ‘System 1’, which is quick, automatic and takes little effort, but which has a tendency to jump to conclusions; this is followed by ‘System 2’, which has to be directed towards tasks, is relatively slow and takes a lot of effort, but which is more rational and less easily misled.
The idea is that the free and easy System 1 does most of the hard yards, but calls on System 2 when answers don’t fit in with it’s view of how things should look.
We have a particular vulnerability to the things we read because we always start off by believing them to be true. As the psychologist Daniel Gilbert put it in an essay titled How Mental Systems Believe (referenced in Kahneman’s book), you first have to know what a statement would mean if it were true, before you can decide whether to ‘unbelieve’ it.
But when such an authoritative source as the Powerhouse Museum puts forward a statement about oil, with a precise number to back it up, most people’s System 1′s are very happy to let their System 2′s continue to focus on what’s for lunch.
You get the same thing with highbrow newspapers and the talking heads on TV. They go to great lengths to make themselves believable and they are.
This of course is how distortions take place in the sharemarket. Apple stock goes up a bit, so we get lots of articles and talking heads about how wonderful the company is and how it’s taking over the world, people lap it all up and the stock goes up further. The same thing is now happening in reverse.
As ever, these distortions can provide opportunities, but only if you can get your own System 2 working. As Ben Graham put it, you need two things to be successful as an investor: ‘One you have to think correctly; and secondly, you have to think independently.’