Wednesday, December 31, 2008

Filtering Bias from Fact

News organizations have long had a reputation for biased reporting. As news outlets become increasingly ideologically polarized, bias has become more acute. To distill the facts of a situation, the consumer has to be skeptical as to the completeness and even the accuracy of any given report. He or she must also be aggressive in seeking out alternative reports to piece together the full set of facts and draw informed conclusions.

This takes time, but is easy to do because technology makes it easier to access different sources of news and perspective. But while the demand side of news has never been so democratic, it’s also never been so easily distorted. As consumers, we can choose to seek the comfort of “reinforcement” under the aegis of seeking “truth” by subscribing solely to ideologically aligned sources of news/information/opinion. We can just as easily choose to completely ignore outlets that are unaligned with our worldview. Consider how this could impact our interpretation of the current state of global economics: depending who you listen to, either capitalism has completely collapsed, or it’s time to buy equities. Exclusive focus on one perspective or another because it reinforces your opinions or satiates your fears puts you at risk to miss the complete picture.

There are many important lessons to teach our children in all of this. Three stand out.

One is that it is important to teach our children to look for the “story behind the story:” what is the motivation behind the choice of facts that are presented in any story by any news organization. Some years ago, a major US airline on the brink of bankruptcy was seeking concessions from its unionized workforce. In every story covering the situation, one US newspaper always made sure to point out that the labor union’s own investment bankers were advising the union to accept the terms, while another US newspaper always mentioned the executive compensation packages. Each was an important piece of data in the full picture, yet one newspaper had a completely different worldview than the other. The point is to understand the motivation behind what it is that each news source elects to include – and exclude. Filtering through this requires time, patience and balance.

Another is that our children have to expect that the people with whom they interact may not be working from the same set of data (and I use that term loosely) in any given situation. Whether engaging in debate, negotiation or just casual conversation, the fundamental facts may be highly suspect. There is no doubt that in the history of time, challenging "facts" has led to all kinds of breakthroughs and revelations. Less dramatically, challenging facts and assumptions was a contributing factor as to why many people elected not to invest with Madoff, or not to invest in opaque securities.

Finally, while our children need to be open-minded to new facts and opinions and need to be ready to acknowledge when they’re wrong, they also need to have the courage of their own convictions in any given situation. As John Kenneth Galbraith said, “The conventional view serves to protect us from the painful job of thinking.” It’s easy to get carried away by momentum and emotion. Precious few had a good year in the markets in 2008, but for those who did it wasn’t entirely accidental. Many (such as John Paulson) identified the signs and implications of a deteriorating credit market and found plenty of willing counterparties for their positions. (Granted, the signs were there for a long time and getting the timing right always requires luck, but taking the positions in the first place was no accident.) Sustaining contrarian thinking in the face of overwhelming conventional enthusiasm is difficult. It requires one to have fundamental objectivity – and tremendous inner confidence in the integrity of one’s objectivity.

The best way to prepare our children for whatever lies ahead is not to impart ideological dogma, but critical thinking and critical analysis. If we do this honestly, of course, we’ll quickly realize that we each have our own biases. We must be willing to acknowledge that we each have our own motivations and so shall our children. Learning to distinguish between the two within ourselves is no easy task.

It also gives us an opportunity to return the repetitive questioning, challenging them with "why? why? why?" with each answer they give.