by Tim Price
[…] The human brain is a pattern recognition engine. We see patterns even and especially when they don’t exist. Scientists call this pareidolia: the perception of a face on the surface of Mars, or of a religious icon on a piece of burnt toast. Financial journalism is hardly immune to it. Perhaps most journalism relating to markets is guilty of some form of narrative fallacy, what Nassim Taleb calls “our limited ability to look at sequences of facts without weaving an explanation into them, or, equivalently, forcing a logical link, an arrow of relationship upon them. Explanations bind facts together. They make them all the more easily remembered; they help them make more sense. Where this propensity can go wrong is when it increases our impression of understanding.” We crave certainty and we cannot stand the idea that there may be ultimately little or no very rational explanation for much of what occurs in the financial markets on a daily basis.