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Priming Your Investment Returns

Doing the garden, digging the weeds,
Who could ask for more?
Will you still need me, will you still feed me,
When I’m sixty-four?

- The Beatles

On Saturday we pondered how your investment returns affect your wellbeing. Today we ponder how your wellbeing affects your investment returns. We’re talking about priming, and how to use it to your advantage.

But before we get to priming, a warning. The first of two warnings in fact. Today’s Daily Reckoning isn’t very well suited to a long weekend. It’s much better suited to the grouchy nature of a normal Monday. If you’d like a more pleasant Monday, we can recommend listening to the Beatles song ‘When I’m Sixty-four’. A study has shown that you will actually grow 1.5 years younger if you do.

For once, the world of finance and economics is not our target. At least not the direct one. We’re picking on the medical researchers and their friends the social psychologists today. And boy are they asking for it.

In 1996 John Bargh, a social psychologist, published a landmark study. He found that people who are primed with words related to old age walk more slowly down a corridor. The people were subtly exposed to the words related to old age during what they thought was the experiment. But the actual experiment, which timed them in the hallway, took place unbeknownst to the participants. The idea was that the subtle mention of words can affect your behaviour.

So, clearly, all you have to do is write ‘profit’ on the ceiling above your bed and you’ll be rich.

Whoopeee!

Now the second warning. If you don’t like harsh truths, stop reading now, because much of the rest of this Daily Reckoning has your editor’s blood boiling. In fact, there’s no hope of going any further without getting a quick rant out of the way. This part is unrelated to your investment returns, but it sure will get your knickers in a twist.

The only thing you need to know before becoming enraged about the following revelation is that ‘replication’ is what scientists use to validate studies. They try and copy a study to confirm its results. ‘It’s our way of checking to make sure that the stuff that enters the public literature is actually going to be true,‘ according to science journalist Ed Young. A study that can’t be replicated in terms of results is more than a little suspicious.

Now on to the disgusting reality of cancer research, as explained by Econtalk.org’s Russ Roberts in a podcast interview of Ed Young:

A recent study… identified 53 landmark studies in cancer research and allegedly 47 of these 53…could not be replicated.

In other words, the studies that are being relied on to save lives are absolute rubbish.

It only gets worse. Focusing in on one of the studies which couldn’t be replicated, the researcher found this:

We went through the paper line by line [and] we re-did their experiment 50 times and never got their result. [The person conducting the original study eventually admitted] he’d done it six times and got this result once but put it in the paper because it made the best story.

Russ Robert’s reaction was a little more tame than your editors: ‘And that really sums up the problem. I mean, good grief! We’re talking about cancer research.’

These medical researchers are literally running their tests over and over again, until they get the result they want. And then they publish that one result. And this isn’t just common, it’s normal!

As you can tell, Russ Roberts is about the least snarky person in the world. He declares his biases and warns you about simply believing him and others. But for Russ to say ‘good grief’ is like your editor filling this article with the outraged language we would like to fill it with.

How much has this practice retarded science? How many people has that killed? And if they do this in cancer research, where else are they doing it? Apparently it’s ‘culturally commonplace‘.

Aaaarrrrghhhh!

Surprise, surprise, the landmark study about people walking down a corridor more slowly after being exposed to words associated with old age turns out to be just a bit questionable. This after it has been cited thousands of times according to Young, the journalist Russ Roberts was interviewing. A recent replication attempt of the 1996 study uncovered some interesting things.

Our very favourite is this one: The priming effect only happened when the people conducting the research were expecting it to happen. In other words, the researchers simply confirmed whatever they expected. If they weren’t told about the priming effect, it didn’t happen. There was no priming affect from the words, it was from the people conducting the experiment.

The logical conclusion from this is clearly that you just have to believe in fairies and triple digit gains in the stock market for them to eventuate.

Whooopeee!

Like Robin Williams in the movie Hook, all you have to do is believe you can fly. Or that your portfolio can. As a long term fan of Peter Pan, we’d take the option of flying ourselves, but find it too hard to believe.

This next part gets really interesting. (We’re assuming that the researchers conducting the replication attempt of the original 1996 study aren’t complete plonkers or dodgy.)

Russ: So, what this replication study found was no effect [from priming], unless you told the guy with the stop watch [about the priming effect]?

Ed: No…the person who ushers the volunteers into the experimental room gives them a sort of envelope with all the test materials in it. If that person thinks that the experiment is going to show that priming reduces walking speed, then they do walk more slowly.

To make this clear, the researchers weren’t consciously biased (that we know of). They didn’t fiddle with the data until they got the result they wanted like the cancer researchers above. So how on earth did they influence the results with their expectations?

That would’ve been the interesting question to go with. But the scientific community decided to embarrass themselves further instead. As a result of the controversy of this failed replication attempt, several things emerged. It turns out that many people try and replicate studies like the 1996 one. But failed replication attempts often ‘never see the light of day‘ according to Young. To put it simply, telling someone they are wrong is just not appropriate in the world of science, even if you’ve gone and proven it.

Aaaaarrggghhhh!

Young’s attempts to highlight this mess has received a mixed response. Along with making himself very unpopular, ‘… one of the most frequent responses I got, was: ‘I’m glad that people are talking about this issue; I’m glad that we are having a chance to bring this issue to light.’

Bloody oath!

What does all this have to do with investing? Well, first of all, if cancer researchers can’t replicate their studies, what do you think the record of finance and economics researchers are like? If cancer researchers are rerunning experiments until they get the result they want to publish, what are finance and economics researchers doing? Let alone the politicians’ teams of surplus-finding budget economists.

So here’s the useful bit of today’s Daily Reckoning, after one heck of a round trip. You need to be extremely sceptical of everything you think you know. Especially things that are true because they have been ‘proven’, or are the ‘consensus’. As soon as an expert is involved, you can’t believe it. The word ‘study’ means ‘less than plausible’.

Secondly, be very careful about what and who you expose yourself to in terms of what you read and who you listen to. All of it will affect your behaviour. Take a moment to remember that when you’ve read or listened to something that has captured your thoughts. Unfortunately, sub-conscious priming works too…apparently…

The whole point of the Daily Reckoning is to insert some scepticism into your regular intake of information. We publish the views of the people who make the opposing argument to what is generally accepted. Our track record at being right tells you more about the conventional wisdom than our wisdom.

Some of the most common emails we get at letters@dailyreckoning.com.au are from readers who disagree with our views, but read our articles for that very reason. These people have not let themselves be subconsciously primed by us. Neither should you.

If the miserable state of science has got you down, don’t let it. There are plenty of positive spins you can put on it. We recently discovered a way of predicting ASX200 returns based on Big Day Out attendance. The fact that a music festival probably shouldn’t have predictive power when it comes to the stock market was our point. And yet our model had a 100% success rate at predicting whether the ASX200 would rise more than 5% next year or not.

Unfortunately, that Daily Reckoning never saw the light of your computer screen. It turns out we got mixed up. The ASX200 predicts attendance of the Big Day Out, not the other way around, making the whole model useless to you…unless you sell hot dogs at music festivals. In which case, it’s not going to be a good year for you.

Here’s a more successful attempt at the same kind of scientifically valid ridicule of science:

Ed:So there is a guy called Joe Simmons; he’s done a really interesting study on this. He outlines these, what he calls “researcher degrees of freedom.” And he applied them to a genuinely collected data set that he had and used it to “show” that people who listened to “When I’m Sixty-Four,” by the Beatles, actually became one and a half years younger. Not felt one and a half years younger. Actually physically de-aged.

Russ: It’s a miracle. I always said the Beatles were a great musical group. But it turns out they are even better than that.

Ed: How amazing. So, this was published. It was done in a very tongue-in-cheek way. Joe’s point is that it is very easy to produce these statistically-significant, apparently positive results by kind of playing around with your data set.

Regards,

Nick Hubble
for The Daily Reckoning Australia

From the Archives…

When Capital Comes A Knocking
2012-06-01 – Greg Canavan

When the Pain From Spain Moves Across the Plain
2012-05-31 – Greg Canavan

Greek Game Theory: Default, Devaluation, Austerity, Deliverance?
2012-05-30 – Nick Hubble

Desperate Stock Market Traders Waiting To Be Made Whole

2012-05-29 – Murray Dawes

Greek Elections: The Fear of Uncertainty
2012-04-28 – Dan Denning

Nick Hubble
Nick Hubble is a feature editor of The Daily Reckoning and editor of The Money for Life Letter. Having gained degrees in Finance, Economics and Law from the prestigious Bond University, Nick completed an internship at probably the most famous investment bank in the world, where he discovered what the financial world was really like. He then brought his youthful enthusiasm and energy to Port Phillip Publishing, where, instead of telling everyone about The Daily Reckoning, he started writing for it. To follow Nick's financial world view more closely you can you can subscribe to The Daily Reckoning for free here. If you’re already a Daily Reckoning subscriber, then we recommend you also join him on Google+. It's where he shares investment research, commentary and ideas that he can't always fit into his regular Daily Reckoning emails.

3 Comments

  1. shortchanged says:

    Aah yes, The Beatles and “When i’m sixty Four” , and Bill Hailey, Rocking around the Clock, small square screens at the cinema, black and white films and ‘teddy boy suits’. My era, late fifty’s early sixty’s. Why am I writing this? nostalga I supppose and the realisation times were not better then. In addition I believe all I hear and read,….. honest!!.

  2. ADL says:

    I enjoyed that very much. Thanks, Nicolai. A world marinating in moral hazard is a treacherous one indeed.

  3. Ross says:

    Highly recommended. Thanks

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