The Dark Side of the Power of Story Telling
Financial B$ thrives because we live in a world that values easy lies over boring truths.
Storytelling is a powerful tool—and one that is often abused.
Stories—which can be factual or completely made up—shape people’s beliefs more than research and data.
In this edition of “Calling Financial Bull$hit,” I review research that explains how stories manipulate people and why you may want to question the advice of some of the most popular personal finance personalities—especially the ones that tell good stories.
Storytellers and manipulation
A 2022 research paper written by Chad Kendall and Constantin Charles examines which type of stories are the most powerful in shaping beliefs; stories that create the illusion of a causal link between an action and an outcome by leaving in additional variables to bridge the two together.
Kendall and Charles point to an example of a politician with an anti-immigration policy who argues that we should allow few immigrants into the country (an action) because allowing higher levels of immigration lowers the living standards of current citizens (an outcome). To convince voters to support this policy, the politician argues that immigrants will take away their job—which is the variable that connects the dots between higher immigration and a lower standard of living.
These stories are even more powerful if the linked variables are correlated. But as we learn in statistics 101—correlation does not imply causation.
If you are unfamiliar with either of these terms, correlation means two things happen together, while causation means one thing directly causes another thing to happen.
The classic example of explaining the difference between correlation and causation is the correlation between ice cream sales and carjacking. When ice cream sales increase, so do carjackings. But we don’t need to be a detective or statisticians to know that eating ice cream does not cause someone to break into a car. While they are correlated, there is a third variable that causes both ice cream sales and carjackings to increase; the weather. In the summertime, more people buy ice cream, and more cars get stolen, but ice cream sales do not cause carjackings.
But most people do not understand the subtle but critical difference between correlation and causation. So, it’s easy for a storyteller to use correlation and trick people into believing that implies one variable is causing the other—or, as is often the case, the storyteller simply doesn’t know the difference either.
Going back to our immigration example. There might (or might not) be a scenario where immigration increases while the living standards of current citizens are decreasing. That would mean there is a correlation between immigration and living standards—but it does not prove that immigration is causing the lower standard of living. There may be other variables like poor tax policy, decreases in worker productivity, trade disputes, or endless other factors driving living standards down.
But a convincing storyteller can use the correlation and tell a compelling story about how immigrants make your life worse. Many people will believe it—especially if it aligns with their prior beliefs.
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Stories are more powerful than the truth
A recurring theme in this series is that many economic models have a fatal flaw; they assume people always act rationally.
Economists might assume that people could see through the narratives presented by storytellers and find the truth.
Kendall and Charles's findings show that people are far from rational and can easily fall prey to compelling stories—even if the story is completely disconnected from reality.
They find that the most influential storytellers use correlation to imply causation. This is no surprise, as research has shown that the human mind is always looking for patterns and narratives to explain their chaotic world. This is a flaw that storytellers can manipulate to get people to not only believe something false—but believe it with enough conviction that they will gladly share the story on Facebook and bring it up at Thanksgiving dinner.
More disheartening was that even when people were shown evidence that disproved a story, they were unlikely to change their minds.
We live in a world where stories > truth