Last night was a resounding victory for the president and his supporters and a crushing blow to the view of the universe put forth by Republican strategists and pundits, many of whom actually believed they were headed for a likely victory in the face of public polling results that strongly suggested otherwise.
The list of Republicans that have egg on their face is not short. Dick Morris predicted a "landslide for Romney." Karl Rove was so convinced Romney would win that he questioned his own network's decision to call the race for Obama. Even Romney's internal polls showed that he was ahead in Ohio, and even in Pennsylvania and Wisconsin going into the election.
With the benefit of hindsight, it is clear that a large swatch of the Republican establishment has been living in their own "reality distortion field" for much of the past few months.
But Republicans do not have a monopoly on the ability to come up with ingenious ways to selectively interpret data in a way that just happens to confirm their own prevailing worldviews. Psychology experiments pretty irrefutably demonstrate that the human brain in general is highly prone to what some call "confirmation bias."
Our hard-wired ability to drink our own Kool-Aid can be useful at times. Without it, we might find it daunting to go down paths that have extremely long odds of success but huge payouts if they are successful -- like finding a cure for cancer, sending a man to the moon, or building the next great technology company.
But our reality blinders are liabilities when it comes to things that lie mostly outside our spheres of control. My field of investing is one example. Just as deeply-held beliefs about a poll's "skew" are not likely to impact the way that people actually vote come Election Day, deeply-held beliefs about an investment's prospects are unlikely to in any way influence its long-term returns.
These mistakes can be costly. The last ten years have seen the popping of bubbles in technology stocks and real estate wipe out billions of dollars in the net worth of those who had convinced themselves to believe that new eras were upon us. On a less extreme but more frequent basis, studies in behavioral finance indicate that investors hold on to losing positions for too long in the face of new information. Mistakes like these partly explain why studies show that the average investor in the stock market performs much worse than if he or she just bought an index fund. Even professional investors are not immune from this.
It is probably impossible, and might be undesirable, to avoid reality distortion fields altogether. But to avoid the fate of Karl Rove, Dick Morris, and thousands of hapless investors, we all need to develop ways to cope with them.
One defense is to make a conscience effort to seek outside opinions and try to embrace skeptics in the ranks rather than shunning them. Given what we know about group dynamics, this is likely to be tough.
Another defense is to use quantitative models like Nate Silver's 538 model and the HuffPost Pollster to help make decisions in a bias-free way. Models like these can add value because they reflect a data-driven and bias-free view of the world. Math -- after all -- has no memory. The trick is to develop enough confidence in the models that we are not tempted to manually override them when they contradict our own preciously-held view of the world. This is unfortunately also difficult in practice.
It is not clear just how harmful the Republican reality distortion field was to their cause. It is possible that if strategists took a more clear-eyed view of the polls they might have broadened their message to appeal more to Lationos, or at least spent resources more on must-win states like Florida, Virginia, and Ohio than on reach states like Pennsylvania and Wisconsin. It is also possible that it would have made little difference in this case.
But either way, the election is a useful reminder to all of us of just how much of an ongoing challenge it is to embrace reality on a consistent basis.
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