Behavioral Finance Video:
Danger: Headlines Ahead
Mark Twain said, “Never let the truth get in the way of a good story.” It might be more applicable today if he said, “Never let the truth get in the way of a good headline.”
The purpose of headlines is just to get you to click or tune in. Fear-based headlines dominate. Headlines that instill concern, anxiety, and fear are especially effective.
A few weeks ago we were bombarded with headlines about the failure of Silicon Valley Bank and prognoses that this failure is just the tip of the iceberg. The media loves apocalyptic spins because it gets greater attention – “if it bleeds it leads.”
Since headlines can be heinously effective, we can learn to break them down, so we think more prudently about the information and our decisions. The headline below is one of the most common (and alluring) types of headlines:
Economist who called 2008 housing crash has a new prediction.1
This headline could get us to click because an economist knows more than we do, this economist was correct in the financial crisis, and we may think how much better we would have performed had we listened to him. So perhaps, we think, we should listen to what he has to say now.
We can think critically about headlines – it will help us remain grounded and may result in better decisions. With the above headline, we may want to consider what the economist’s track record is on predictions. Where has he been since 2008…is that the only prediction that was correct? We aren’t given that information. And that is what it comes down to. We need to consider what isn’t being reported.
Improving Your Decision Process
Thinking critically about headlines and accompanying investment stories can help you make better decisions. Financial information is often used to get your attention and may be selective with the information it shares – so the story can be alluring. We just need to make sure your decisions consider all information, not just what is reported that day.