Thinking smarter: finding truth in a post-truth world

My name is Alex Edmans, I'm a professor of finance at London Business School, and this talk is entitled "Thinking Smarter: Finding Truth in a Post-Truth World". Why I'm giving this talk is that there is so much data evidence and research out there, and some of it is reliable, but some of it is not. This is trying to help you discern the truth from the fiction.

Let me start with three statements. One - Proof that ethical funds often outperform their peers. Two - Cities with the worst air pollution have bigger coronavirus outbreaks, say scientists. Three - Professors on corporate boards increased profits. Now, these three statements have three things in common. First, we would all like them to be true. We'd like to believe that ethical companies perform better. We also believe that air pollution is a serious issue, and certainly for me. I'd like to believe that professors help the profits of a company. The second thing in common, is they all claim to be backed up by research. Scientists say that air pollution makes coronavirus worse. But third, none of these things are supported by the data. I notice the first and the third are strongly connected because we would like these things to be true. We believe in them, even though the research is weak.

This is the phenomenon known as confirmation bias. That is our temptation to accept uncritically any claim that we would like to be true, even if the evidence is weak. The foundation of confirmation bias is deeply set. To show this, there were some experiments which took people, they hooked them up to magnetic resonance imaging or MRI scans, and it looked at what the brain activity was when people were given statements they disagreed with. There were two types of statements that these subjects were presented with. Some of them were political, such as the death penalty should be abolished, and some of them were non-political, such as Thomas Edison invented the light bulb. Then the experimenters read out some contradictory statements, and they saw what happened when those contradictory statements were read out. Now, when it was a non-political statement that was contradicted, there was no unusual brain activity. But when a political statement was contradicted, then the amygdala lit up in the brain. What is the amygdala? That is that part of the brain which is activated when you're attacked by a tiger and it induces a fight or flight response. People respond to being contradicted as they would do if they were attacked by a tiger. They believe their belief system is under attack. This is why people suffer from confirmation bias. They would only like to hear things that confirm their view of the world. For example, what was the subtitle of the article with the heading 'Proof that ethical funds often outperformed their peers'? The subtitle was, 'For investors demanding evidence that ethical investing does not sacrifice returns, check this data'. Only if you want evidence that ethical investing pays off, read the article. If not, don't take a look at the article.