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Index Universe: When you were doing your research, was there anything in particular that really shocked or surprised you when you were talking to these different scientists?
Zweig: The really surprising thing is how little we know about how we think. J.P. Morgan once said that every man has two reasons for everything he does: the reason he states and the real reason. I think he meant something a little different by it, but what a neuropsychologist or a neuroeconomist would say is that most of us don't even know why we do things ourselves, and we can often be in the grip of unconscious emotion or unconscious biases, feelings and inclinations that are in our mind but we have no awareness of. You feel it; you just can't articulate it and you may not be aware that it's there until after it passes. This is one of the hardest ideas you can ever get someone to admit.
For example, if you're watching CNBC and the market is plunging and Jim Cramer is throwing furniture and biting the heads off live chickens, you may be sort of watching it saying, "Oh wow, something really bad is happening; the market is crashing." But while you're watching it your palms are sweating, your breath is coming fast, your pulse is racing, your muscles are tensing, your entire body is on red alert. You're intensely upset by what's happening in front of you, but the thinking part of your brain is so busy trying to make sense of it that it's not aware of what the emotional part of your brain is experiencing. And if in that moment you are suddenly called on to make a choice, "Should I sell this stock or should I hold it?" ... If you're making that choice at that moment while Jim Cramer is screaming in your face, you will not buy and it's highly unlikely that you'll hold ... because all of that screaming, all the red, all the downward pointing lines are so upsetting that you will make a negative decision, even if you're not aware at that moment of how upset you are.
The flip side of this is unconscious bias. Just as you can have a feeling that you're not aware of having, you also can have preferences that you don't realize you have. The simplest example is what psychologists call "implicit egotism," which is a really bad term for liking whatever is closest to you in some way or another. For example, people are 65% more likely to marry someone whose surname begins with the same initials as their own. Psychologists have looked at hundreds of thousands of data points and demonstrated very clearly that this is true, and that people named Dennis and Denise are much more likely to become dentists than you would expect by random chance. People named George are more likely to become a geoscientist then you would expect by chance alone. We all come with these strange, unconsciousness preferences. We don't think we think that way, but we do.
The best example I can give is in June I was making a speech about the book in Edinburgh, Scotland, and I was at one of the largest global equity managers in the world, and I put up a slide about these forms of unconscious bias. All the Scots in the room were chortling: They couldn't believe how stupid Americans are, and that anybody would actually do something like this was just beyond them. Then the chief investment officer of the firm said, "Well, what about ..." and he named a stock that this firm is heavily overweight in. It turned out the ticker for the firm they're overweight in matches the firm's own initials. He said, "I'm very glad that you pointed this out because I never would've realized it. We probably do have an unconscious bias and now we're aware of it. Now maybe if the time ever comes that we need to sell that stock, we can make a more objective decision."
So people do stuff like that all of the time, and I'm prepared to bet that if we did a survey of all equity fund managers within America and we simply found out the eye color of all the managers and we then went and looked at their portfolios, we would find that UPS is over-owned by brown-eyed managers and Jet Blue is over-owned by blue-eyed managers. I haven't done this research yet, but I am very confident that that hypothesis is a good one. This is something that investors need to be aware of: Active managers may think they are choosing stuff for one reason, but actually it's almost as if the choice has been made for them by unconscious biases they don't even realize they have.
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