How Political Thinking Can Obscure Our Decision Making—and Why It Matters for Investing

The 2004 Presidential campaign pitted incumbent President George W. Bush against Democratic challenger John Kerry. This high-stakes political battle also provided an opportunity for brain researchers to study the science of what makes belief so “sticky.” Researchers gathered participants who professed a well-defined preference for one candidate over the other and presented them with seemingly contradictory statements made by President Bush, Senator Kerry, or a politically neutral public figure. Further information made the contradictions appear more plausible. Participants were then asked to determine whether these individuals had indeed made inconsistent statements.

While participants evaluated these statements, they were monitored inside a magnetic resonance imaging (MRI) machine, allowing scientists to observe their brain activity. As subjects assessed the seemingly contradictory statements made by their less-preferred candidate, the emotional centers of their brains remained inactive, enabling cold, rational judgments. However, when they evaluated statements from their preferred candidate, the emotional centers of their brains became highly aroused. The results showed clear differences: participants were very likely to label the less-preferred candidate’s statements as contradictory but were highly unlikely to do the same for their chosen candidate. Essentially, when “their guy” said something incorrect, their emotions drowned it out, but when “the other guy” said something implausible, they rationally pointed out the fallacious thinking.

In simple terms, we rationally evaluate things that do not intersect with our worldview and emotionally evaluate those that do, as part of our ongoing effort to maintain a belief in our own “rightness.” This cognitive bias, known as choice-supportive bias, is a form of regret aversion designed to minimize unhappiness, promote well-being, and save cognitive processing power for more important tasks. Imagine how tired and depressed you’d be if you constantly second-guessed yourself! Interestingly, we show no choice-supportive bias when assigned an option through chance or random selection. It is only when our personal choices and pet beliefs come under scrutiny that we rally our ego to our defense.

The Impact of Political Thinking on Investing

Investing, much like political preference, requires clear-eyed decision-making. Good investing demands patience, unemotionality, and the ability to make rational decisions based on data and sound analysis. However, political reasoning can negatively impact these critical investing traits.

When we allow our political beliefs to influence our investment decisions, we risk letting emotions override rational analysis. Just as political biases cause us to irrationally defend our preferred candidate, they can lead us to irrationally favor certain investments or market trends that align with our political views. This can result in poor investment choices driven by emotion rather than logic and data.

Keeping Politics Out of Investing

To achieve long-term investment success, it's crucial to keep political views separate from investment plans. Here are a few strategies to help maintain this separation:

1. Focus on Fundamentals: Base your investment decisions on fundamental analysis and sound financial principles rather than political news or opinions.
2. Diversify: Diversification helps mitigate the risk of letting political biases impact your entire portfolio. Spread investments across various sectors and asset classes.
3. Stay Informed but Detached: Stay informed about political events, but strive to view them through an analytical, rather than emotional, lens when it comes to investing.
4. Seek Professional Advice: Consider working with a financial advisor who can provide an objective perspective and help you stay focused on your long-term investment goals.

By recognizing and mitigating the influence of political thinking on your investment decisions, you can cultivate a more disciplined, rational approach to investing, leading to better outcomes over time. Remember, the goal is to build wealth and achieve financial security, not to validate political beliefs. Keep your political views and investing plans separate to ensure that your financial decisions are driven by data and reason, not by which lever you'll be pulling in the ballot box this November.?