Politics – Applied Macro

Project onto blanks

Keanu Reeves – good films, bad actor?

I read an interesting article recently on Keanu Reeves acting style. Apparently in the world of acting, his style is to present himself as a blank canvas, upon which viewers can project themselves. It helps explain why I love so many of his movies (Matrix, Point Break, John Wick, Bill & Ted), but struggle to understand why, as he doesn’t appear to be a very good actor.

This style of acting certainly makes sense in the context of watching a film, we gain particular pleasure from being able to imagine ourselves as a participant in the drama. Similarly, I have also read that men watching sport are essentially fantasizing that they are actually playing themselves.

Keanu’s aim is not to overwhelm, his voice and facial expressions are muted, the personality left somewhat undefined and given this lack of concrete character, we can overwrite with our own feelings. Although I’m less of a fan, it helps explain why Tom Cruise is such a successful leading man.

This concept does not just apply to sports and movies, it occurs to me to this has wider applications:

Extension to business

An area where I find I’m mindful of this issue is when I conduct an interview at work.

If I run an informal, unstructured interview then often my impression of a candidate will relate closely to my mood. If I am highly positive and energetic, then we are likely to have an energetic conversation and I will come out thinking this person has those qualities. I tend to think well of people and so am in danger of projecting the qualities I like onto them.

Over time, I have built a more structured interview and hiring process, with a prepared common list of questions and involving independent interviewers. This helps to highlight a candidate’s strengths and weaknesses in a more objective manner.

Extension to politics

The effect in politics is also interesting, perhaps increasingly so.

The marketing of politicians has evolved over the decades. It used to be that politicians had a set of views, often described in speeches and laid out in a manifesto. Later it seems clear that to win an election you do not need to have coherent views and that the overall spin and marketing is what matters. Now, it appears that elections have moved to another level. Politicians are even more electable if their views are actively incoherent. A politician is no longer required to be a well-rounded person with specific policies and characteristics which can be evaluated – it is more important to be an avatar for the emotions of their support base.

The outstanding recent example of this is of course Trump. But it also helps explain the behaviour of the leading Brexiteers, such as Boris Johnson. A lack of coherent viewpoints is not a flaw, it is the essence of their appeal. They are liked because of their incoherence, not in spite of it. By making rambling, nonsensical speeches without the need to engage with any aspect of reality, they create a perfect blank upon which the emotions of their supporters can be projected. You do not need to look for the inconsistencies and incompatibilities within their support base, they are sure to exist. What’s more important is the common emotional need they all share, and wish to express.

This also means that whatever you think of Trump or Boris personally, they are not the real problem.
Without them, another avatar would be found to take their place. Boris will only remain the darling of the Telegraph as long as he continues talking gobbledygook in a manner they find amusing. He knows that if he gave a serious speech acknowledging the trade-offs involved in Brexit, they would find another to take his place, so he happily makes speeches which he must know are full of lies and nonsense. It is very possible that Trump does not understand any of this or that he is not in control of his movement, or even his own identity. His candidate lost the recent Alabama primary to a candidate promoted as backed by the @realDonaldTrump. Steve Bannon told a rally “a vote for Judge Roy Moore is a vote for Donald J Trump”, while Trump himself was campaigning for Sen. Strange!

The movement existed before Trump and is merely using him as its current symbol. They are in a symbiotic relationship of mutual support, and have created a powerful and dangerous, political force.

The Backfire Effect

Recently in the news

You may find it puzzling that Republican voters are still backing Trump.
You may be amazed that the same voters do not believe that Russia interfered with the election, or that there is any connection to the Trump campaign.
In that case you must be shocked that the recent Donald Junior revelations have make their belief in ‘no collusion’ even stronger.[1]

But then again, is it that surprising? I previously discussed confirmation bias and desirability bias (https://appliedmacro.com/2017/07/10/decision-making-systematic-flaws-biases/ and https://appliedmacro.com/2017/07/12/desire-the-fatal-flaw/)) but in this case feels like there is a different driver at work.

“Backfire effect”

This recent paper [2] found that “direct factual contradictions can actually strengthen ideologically grounded factual beliefs”. This is the “backfire effect”.

In contrast to what we saw previously:

Here we have:

The more evidence and the clearer the evidence against Trump, the more strongly his supporters believe him innocent. Trump supporters are not backing him because of facts or policies, this is about ideology and culture and it is a battle. Facts are irrelevant.

There are plenty of examples which demonstrate this. Tim Harford talks about how the tobacco industry managed to delay regulation for decades despite overwhelming evidence showing the link between smoking and cancer. [3] Another favourite example is what happens to cult members who believe that the world will end on a specific day. They give away their possessions and prepare for their ascension to heaven/alien spaceship. When the day arrives and nothing actually happens, they do not lose their faith; their faith in the end of the world actually increases. Perhaps the “backfire effect” also explains why Tony Blair’s support for the Iraq War became more fervent despite mounting evidence against the entire premise.

Back to Trump-gate

Given this, I fear that this ever-larger number of smoking guns will not help the Democrats much, even with increasing suggestions of criminal activity not just from the Trump campaign but from the Trump family itself. The way to defeat the Backfire effect is not to counter with ever more evidence. There was no possible evidence based argument that would have changed Blair’s mind about war.

The best approach is to build a compelling alternative narrative. Corbyn did this very successfully in the last election, making no attempt to defend himself against May’s attacks, focusing only on what he wanted to talk about. He did not change people’s minds about Trident, he stopped them thinking about it. What we focus on is far more important than the content of the debate.

Like all cognitive biases, spotting them in others is far easier than in oneself. We can all fall foul of the “backfire effect” when it comes to our most central values and beliefs. For business and investment, it has perhaps led to the most catastrophic of errors. The disasters of RBS, Lehman and Enron can be traced to core beliefs that proved successful at first, but then warning signs were ignored as the management became ever more evangelical in their confidence that their path was the right one.

When we are looking for investment analysis or advice, then we should be very wary of those with high and unchanging conviction. Some of the ones I regularly come across: the EU will break up/stick together or China will implode/ take over global dominance or the bond market will crash/inflation will never return. They argue passionately and eloquently (they are well practised) but are the ones most likely to be victims of the “backfire effect”. The element that makes them so popular as guru strategists and TV pundits makes them highly unreliable sources of investment advice.

Perhaps we should simply recognise that we may easily fall for this as individuals, but by building diverse enough teams and open enough culture, we may not fall for the same cognitive flaws.

Summary

As with confirmation bias and desirability bias, the “backfire effect” is important and can warp your interpretation of the world. Your political enemies and people you do not respect will not be the only victims of this. We can all fall prey to it and should be most sceptical of our views which are most closely linked to our core values and beliefs.

[1] http://www.breitbart.com/big-government/2017/07/16/just-nine-percent-republicans-think-trump-russia-collusion-abc-wash-post-poll/

[2] http://www.dartmouth.edu/~nyhan/nyhan-reifler.pdf

[3] http://timharford.com/2017/03/the-problem-with-facts/

Brexit – Deal or No Deal?

Before the election

Before the general election, whether we reached a deal with the EU or not, did not seem to matter much. We seemed determined to head for a Hard Brexit, which looked similar to No Deal.

With the UK outside the Single Market and Customs Union, we would face a massive negative economic shock and potentially a resulting financial crisis. I did not discount the idea that we might not leave the EU or get a Soft Brexit, but did not see a path to get there. (https://appliedmacro.com/2017/05/04/what-game-are-brexiteers-playing/)

This all changed with the election…..

The election result

After the election, there is no longer a mandate, either for Hard Brexit or for exiting without a deal. I loved the article in the FT last week which laid out 6 options (https://www.ft.com/content/7be243f2-51ae-11e7-a1f2-db19572361bb) It is very funny and I highly recommend a read. I will leave the comedy to Robert Shrimsley, and think about what paths are likely now.

What is striking about any possible path is that none have a mandate or parliamentary majority.
Let’s start by separating them into:

Deal
No Deal

What does a Deal look like?

A deal will have to cover an extremely broad range of areas:

Rights of UK citizens in the EU and EU citizens in the UK
Settling the accounts (“Brexit Bill”)
What to do with Northern Ireland
Single Market
Customs Union
Trade agreement
Services agreement
Role of ECJ
Regulation
Tax
Etc ……
the mind boggles at how complex this is.

It is very hard for me to see the current UK government managing to cobble together a common negotiating position on all of these in its tenuous state, never mind go through all the details with the EU.

Where next?

Although the tide of public opinion seems to have turned against her mindless slogans, Theresa May seems likely to go on, for as long as possible, using silly phrases like “Brexit means Brexit” and “Strong and Stable” and “Red, White and Blue Brexit”. Her problem is that any attempt to lay out a strategy with sufficient clarity that the EU can understand it, is likely to bring down her government.

There is no parliamentary majority FOR any Brexit option, but I think there is a parliamentary majority AGAINST all of them.

The fall of the government would lead to another election. In this, I am not too optimistic that the main parties will lay out clear and distinct sets of ideas on Brexit. May previously tried this and completely failed. The “success” of Corbyn was perhaps to be so incoherent on Brexit that no one understood it well enough to object to it.

So again, how can a government without a clear UK negotiating position make a deal?

Maybe they just can’t.

What does no Deal look like?

Which means we get left with No Deal.

This has two clear and distinct paths:

i) Stay in the EU

ii) Leave without a Deal

Now I really do not know which is more likely.

A new Referendum posing this much clearer question?
My money would be that the vote will go against whatever the government in power proposes.
If May wants to Remain then we will Leave, if she wants Hard Brexit we will stay.

Brexit has gone from being an odds-on fiasco to utter chaos.
I am not sure yet if this is better or worse.

What have we learned about the parties from the election?

I think worth laying out a few ideas on what I have learned after this election.

Things that seem clear – but we probably knew already

May is a terrible leader

May is a terrible campaigner

The Conservative Party is deeply divided
and may break out into open civil war at any moment

Things that seem new

The country is dominated by division on age lines not class lines
I found this chart to be shockingly good as a model for voting behaviour.
I am at exactly the crossover age, which perhaps explains why I dislike both so much!

Your income says nothing about who you will vote for
The next chart is also stunning

Things that seem incorrect

· For Labour, Corbyn is an electoral asset whose positive campaign resonated with the electorate and he is poised to win next time.

Corbyn set expectations so low this feels like a landslide victory for him. But it was not.

1979 Callaghan 269 seats, he admitted defeat & resigned.

1992 Kinnock 271 seats, he admitted defeat & resigned.

2017 Corbyn 262 seats, claims victory and orders the winner to resign.

This was yet another vote AGAINST the elites.
Labour’s campaign was much better than the Tories but the idea of a Progressive Alliance doesn’t really exist. The Progressive Alliance is defined by its OPPOSITION to the Tories.
In that way, it reminds me of the Lib Dem party. A group of disparate protest votes united through negative cohesion as they all hate the same things. But once in power, they fall to pieces losing large portions of their supporters feel betrayed by almost any action they take.

However if the seemingly inevitable Tory civil war is bitter enough, maybe even Corbyn can win.

Hard Brexit is unpopular

A mandate for a Hard Brexit was the central theme of May’s campaign. But the Brexiteers have perhaps, done far too good a job of convincing the electorate that Brexit has already happened. The continual media suggestions that the economy is doing much better than predicted post the Brexit vote, helps to support the myth that Brexit has already happened. If Brexit has already happened then it is hard to argue that it is still the most important issue.

If this is the case then it was not just the negative campaign against Corbyn that backfired, it was that the central “positive” element just didn’t make any sense and Labour’s focus on more traditional election issues such as Health and Education resonated far more strongly.

Hard Brexit is very unpopular with me and I think is the dominant issue we face. But I do not think my views are commonly shared by the electorate.

Opinion polls are worthless

I think the problem is that people do not understand what a poll is, and especially what uncertainties are inherent in them. This means that they get over-interpreted, and then the source is later blamed for not producing for which was impossible in the first place.

What I learned from the opinion polls during the election period was, not that the Tories had a big lead, but that the polls were massively volatile. Minor changes in methodology between polling companies seemed to be part of the outsized swings day to day – this is extremely useful information. The conclusion being that the uncertainty band around the poll should be seen to be extremely high, and this result fell easily within my uncertainty band.