Keeping An Open Mind Amid a World of Echo Chambers

Colin Powell, a retired four-star general and prominent figure on the U.S. political scene, recently offered the following solution to the issue of polarization in politics: “We need to stop screaming at each other, stop insulting each other, and start to be friends with each other like we were for so many years.” Part of the problem, he contends, is that “social media and news programs egg it on, making it difficult for Washington legislators to take more middle-of-the-road paths.” ¹

This concern about the growing influence of social media goes beyond politics. For many, a genuine concern exists that social media has created echo chambers for too many people. Because platforms like Facebook and Twitter digitally filter the news you see according to what you have read or “liked” in the past, there is a fear that people are only exposed to views that match their pre-existing ideology. At its core, the concern is that we are no longer exposed to information we disagree with, because that information is partly filtered out by the recommendation engines of these technology giants. One click, and you are on the path to more of the same. Social media companies have tried to respond to this criticism, but the debate rages on.

At Nexus, we think remaining open-minded and avoiding the echo chamber is a critical part of successful investing. Why? Investors – like all people – are subject to various behavioural biases that can lead to poor decision-making. One of the most harmful is known as confirmation bias, which is the tendency to seek information that confirms prior conclusions and ignore evidence to the contrary. When you invest in anything – it could be a stock, a bond or even real estate – once you’ve made the decision to buy, there is a powerful tendency to look for information that confirms you were right, rather than information that suggests perhaps you were wrong.

Many bright minds in the world of investing and psychology have offered up suggestions for overcoming confirmation bias. Here are a few of our favourites:

• First: seek out disconfirming information. If you actively look for information that proves you’re wrong, you often get to the truth faster than looking for information that proves you were right.
• Second: talk to people who don’t share your opinion. It may be unpleasant, but it’s an effective way to avoid the echo chamber.
• Third: be actively open-minded, as it helps you avoid clinging to a narrow point of view. However, as a wise commentator once noted, it’s good to have an open mind, but not so open that your brains fall out.

In our experience, following these three suggestions is a good discipline in the world of investing. Just as open-mindedness leads to better thinking in investing, so too might it help the discourse in politics and wider society today.