Note: This post was originally published in the July 2015 issue of Value Investing Almanack. To read more such posts and other deep thoughts on value investing, business analysis and behavioral finance, click here to subscribe to VIA.
“Where is it?” I asked my wife, while my eyes scanned the kitchen cupboard again. I was looking for the sugar jar. The plan was to impress her with my exceptional tea making skills which I acquired after watching few YouTube videos.
“It should be there. Right in front!” informed my wife from the other room.
“It’s not here. I can’t see it.” I again scanned all the shelves in the cupboard.
“Look again. I kept it there in the morning.” My wife sounded very sure about it.
“No! It’s not here. I am sure.” I confirmed while closing the cupboard. What happened next shouldn’t be surprising for you because most of you have experienced it before.
She came, opened the cupboard, grabbed the sugar jar which was obviously sitting right in front and handed over to me. I stood there flabbergasted. How could I miss it? What’s wrong with my eyes? Have I gone blind? It felt as if the jar manifested itself out of thin air. It was like…magic.
Haven’t you experienced something similar in your life? I see a smile on your face. 🙂
Now that embarrassing episode in the kitchen may look like a minor incident but it holds an important clue to a fascinating behavioural bias inherent in every human brain. It’s called Inattentional Blindness, which means not being able to see things that are actually there.
May be you’re thinking, “Well, I am not one of those. You can’t fool me and I always find the sugar box in my kitchen.” Okay, let’s test that. 🙂
Pick a card, any card. Keep it in your mind; Better, write it down if you have a poor short term memory.
I’ll come back to this card trick little later in this post.
Are You Paying Attention?
Let me throw a challenge at you. Watch this video to test your attention.
Don’t read further. If you skipped the video, you’ll miss the fun because I am going to spill the beans in the next few lines. Come on, watch the video and then come back. I promise, I’ll be waiting for you, right here.
Daniel Simons, who designed this experiment in collaboration with Christopher Chabris, writes –
Chabris and I have studied this phenomenon of inattentional blindness for many years. Our best-known study was based on earlier work by Ulric Neisser: We asked subjects to count how many times three players wearing white shirts passed a basketball while ignoring players wearing black who passed their own ball. We found that about 50 percent of subjects failed to notice when a person in a gorilla suit unexpectedly walked through the scene.
The mismatch between what we see and what we think we see has profound implications on how we make decisions in our life. Moreover, what’s scary about the invisible gorilla experiment is that even experts fall for this, as suggested by this study.
The Secret of Illusion
Inattentional blindness is the secret behind the illusions created by most professional magicians, especially those who are expert in performing those entertaining sleight of hand tricks. You would be surprised to know, as I was when I first discovered this, that the key to performing magic tricks is to manipulate and manage people’s attention.
Let me give you a quick primer on how magic works.
Your attention is like a surveillance system which is constantly focussed on wide array of external stimuli coming from all directions. Your mind is always busy processing those stimuli. It’s like a CCTV camera capturing everything and recording it into memory.
Interestingly, there is a limited supply of attention for everybody at any given moment. And this limited resource can obviously be spent on limited things. The moment you are distracted, like trying to answer a question which requires you to recall something from your memory, the link between your surveillance system and the memory gets severed for few seconds and whatever you see doesn’t get registered in your memory because the memory is engaged in attending to distraction. And when your mind can’t attend to something, it can’t be aware of it.
A magician uses his voice (distraction by funny remarks or asking questions), his eyes (he looks in that direction where he wants you to look at) and his one hand (while his other hand, which is not visible to you, is doing the trick) to create host of external stimuli to drown your attention in it. What he is trying is basically forcing you to spend your limited stock of attention on things where he wants you to spend your attention. He is virtually stealing your attention!
Since our attention steers our perception and controls our reality, when a magician controls your attention he essentially hacks into your perception of reality.
Apollo Robbins, a deception specialist, explains that attention can be localized to a frame – a small window of space created to focus attention. Manoeuvres outside of the frame are rarely noticed. Magicians, with thousands of hours of practice, master the art of misdirection. You may feel that you’re in complete control, but you’re literally a magician’s puppet while he is surfing through your attention
Now don’t get me wrong as I am not saying that everybody is prone to miss the invisible gorilla. There are individual differences among people. But research shows that the variability across people is far smaller than the similarities among us.
While some people may notice a bit more than others, we all have severe limits on how much of the world around us actually reaches our awareness at any moment.
We Don’t Know that We Don’t Know
The first problem with inattentional blindness, as we saw above, is our failure to notice unexpected events that fall outside the focus of our attention. But if you really think about it, inattentional blindness in itself isn’t such a big problem. I mean missing the sugar box isn’t such a show stopper and neither does the gorilla (or the man inside the costume) feel neglected.
What makes this shortcoming critical is that we are largely oblivious to the limits of perception, attention, and awareness; we think that we are far more likely to notice unexpected events than we actually are. It’s our overconfidence in our abilities and perception.
In the real world, due to extreme complexity and randomness, there is an invisible magician who is busy pulling out gorillas from thin air. Question is, are you expecting to see those gorillas which are going to show up sooner or later?
Because of unawareness about fallibility of our perception, we lower our guards and underestimate the uncertainty inherent in the world around us.
Look at all those people who use their smartphones while driving. They have overconfidence in their abilities to multitask. They fail to realize that they aren’t just putting their own lives at risk but becoming a hazard for others too. And when they get into an accident they have only one excuse – “I just didn’t see that coming.”
Similarly, illusion of knowledge makes us overconfident and we miss the obvious. It happens when we have a big project to complete, a problem to solve, or an assignment to do. We give in to the temptation to dive in and get started immediately. Instead we should first examine our understanding of the task and its requirements.
Peter Bevelin, in his masterful book, Seeking Wisdom, says that we only see stimuli we encounter or that grabs our attention, and neglect important missing information. He further explains –
We react to stimuli that we personally encounter or that grabs our attention. We react more strongly to the concrete and specific than to the abstract. We overweigh personal experiences over vicarious. We see only what we have names for. We tend to focus only on the present information rather than what information may potentially be missing. For example, when planning, we often place too much importance on the specific future event and not enough on other possible events and their consequences that can cause the event to be delayed or not happen.
We see one person winning the lottery, but forget about million other who didn’t. Remember alternate histories mental model?
While replying to one of the questions asked by Vishal, Prof. Bakshi replied –
The absence of something we expect to see or happen is information and a clue in itself.
“Is there any point to which you would wish to draw my attention?”
“To the curious incident of the dog in the night-time.”
“The dog did nothing in the night-time.”
“That was the curious incident,” remarked Sherlock Holmes.
How can we use this example? Let me tell you how. Imagine that there is a commodity industry whose profitability is highly volatile because the price of the raw material it consumes is quite volatile. When the raw material price rises, the profitability of the industry falls dramatically because the industry has little pricing power. But then you notice that there is this one business in that very industry who is like Sherlock’s dog who doesn’t bark – its profitability is not impacted at all. Now, isn’t that amazing? Isn’t that worth investigating? I think it is.
So you put on your detective hat and ask why this business is different? And if you keep doing this, once in a while you’ll find a pattern that’s different for one or more very good reasons which you understand and which you think are sustainable.
This is how you stumble upon treasures. You are, in a way, like a treasure hunter or a detective who is really looking for unusual patterns that kind of stand out and that would make someone like Sherlock Holmes stop and think. And in world of stock picking, there are all kinds of unusual patterns that are worth investigating but trust me, you are not likely to find them reported to you in a newspaper. You have to do your own digging and thinking.
When looking for information, don’t drown your attention in the noise created by newspapers and other popular financial media. Prefer quality over quantity.
During bull markets we get so engrossed in the noise about multibaggers that we miss the obvious future wealth compounders lying in plain sight.
When you’re reading the annual report, don’t just focus on what the management is trying to tell you. Focus also on what they might be trying to hide from you. Don’t just pay attention to what’s disclosed, pay attention to what’s not disclosed. The management might be a magician who is trying to misdirect and manipulate your attention.
Sometimes our two eyes aren’t enough to see the obvious. Inattentional Blindness hides from us what’s right in front of our eyes. I would like to say this again – attention is a powerful thing and it shapes our reality.
So please pay attention and please, please, please don’t talk on the cell phone (or text) while driving. It’s very dangerous.
Before I close, let’s finish the card trick that we started with. I hope you remember the card you picked because as you’ve been intently focussed on this post, I’ve been busy reading your mind. Take a look below, is your card missing? I’ve removed the card you picked from the line-up.
I am sure you can guess how this trick works now. Can’t you?
Take care and keep learning.