Richard Heuer, a CIA veteran of 45 years, wrote that “once information rings a bell, the bell cannot be unrung.” What he meant was that once we learn something, it leaves an impression that is hard to erase — even after we find out the idea is false and discredited. It is an innate feature of the human mind – and one reason we sometimes make poor judgments. The first impressions we form, even mistaken ones, last.
This idea comes up in Heuer’s book, Psychology of Intelligence Analysis, which he wrote to help CIA professionals do their jobs better. Intelligence analysts have to deal with a flood of information in highly uncertain environments that are dynamically changing — and they have to make consequential decisions. It is very much like what investors, and really all of us to some extent, do every day. How do you make good judgments under uncertainty? How do you decide what information is important and what should be discarded? How do you come to a conclusion?
It’s not easy. Investors who read Heuer’s book will get to relive every mistake they’ve ever made. Heuer starts with our tendency to see what we expect to see – and that makes it hard to recognize what’s unexpected. Take the picture above from Heuer’s book. Did you see what is really there? (Or did you catch that the article is written twice in each phrase?)
It is especially hard to see what’s unexpected when change is gradual or when information becomes available only in increments. The first pieces of information we get are disproportionately powerful, even if new, contradictory information comes to light. That makes it all too easy to expect oil prices to behave in a certain way – or to expect blue chip stocks to perform quarter after quarter, but then overlook the first signs of a company’s downfall from blue chip status. How many times have I looked at the same stock and repeated my (wrong) conclusion over and over? (Answer: too many, to my detriment.)
An interesting exercise is to think about how each of us took in the story of COVID as it unfolded last winter. Information was so sparse and chaotic in the beginning that our differing perceptions probably mostly reflected our own preferences, biases, and personal beliefs. But as more information came to light, who saw how serious COVID was, and who discounted it? And who among investors had the wherewithal to pivot from the disease to the massive stimulus that became the story that mattered?
One thing we should try to avoid is what Heuer calls “satisficing.” That is when we accept the first reasonable alternative that looks good enough. Then we go about gathering the evidence that fits while rejecting what doesn’t fit as “unreliable” or “wrong.” This is what many of us do – even the pros. But what we should do is first identify a full range of competing hypotheses, then seek not to prove the best-looking one — but to disprove as many of the alternatives as we can.
It’s a very different way of thinking and a step toward getting away from personal biases. Give it a try the next time you feel inclined to declare that the market is too high, too low, too bubbly, or too ugly – or really any opinion you may want to express.