It certainly can be helpful to keep up with the news. Whether it’s a crime alert in a specific neighborhood, or the rise and fall of the stock market, being on top of the news enables one to act instantly on the information.
But how does one make sure that the news he reads is authentic and correct?
Lying With Numbers
Numbers don’t lie, but you can lie with numbers. It’s possible to twist accurate figures in all kinds of misleading ways. It’s therefore important to dig a bit deeper into the “facts” before coming to concrete conclusions. Reporters, radio show hosts, and authors often mislead with numbers- whether purposefully or mistakenly. However, this type of misdirection is generally apparent with just a bit of common sense.
Big Numbers Without Percentages
Just because a number is large doesn’t mean it’s important. Reporters like talking about the stock market rising or falling by many points because that makes it sound like something big happened, something worthy of breathless reporting. But a 500-point move is less than 2% relative to the current (Dow Jones) market’s value of over 26,000—a shift that is quite common. Reading about local grocery sales is probably more meaningful than a 500-point shift in the Dow. Taster’s Choice coffee at 75% off! Now that’s news!
Large Percentages With Meaningless Numbers
On the other hand, when a number is a small one, reporters may only mention the information as a percentage to sensationalize the story. Crime rising rapidly sounds like an urgent matter, but it’s important to know: an increase from what level? A 100% increase in lawbreaking may mean that this year, two people dropped litter at the playground, versus last year’s one. Not a reason to stop visiting that play area.
True Numbers Without Context
Another way to mislead despite using accurate numbers is to neglect the context. In 2017, the Asbury Park Press headlined one of many negative articles as “Lakewood Welfare: Half of Children Get Assistance.” While the piece did use both absolute numbers and percentages, it failed to mention that, statewide, 42% of NJ’s children use NJ FamilyCare. Presumably, that vital fact would have diminished the storyline that Lakewood’s welfare usage is extremely “high” and “widespread.” After adjusting for Lakewood’s unusual student population and family ages/sizes, a 50% usage isn’t too dramatic.
What About Risks and Failures?
A similar lack of factual context in some investment ads and pitches is unfair to potential investors. I’m all for aiming for the highest possible returns, but advertising only the potential rewards and past successes is quite misleading. If some investors in a strategy made 20% while others broke even and another group actually lost money, that’s a material fact that needs to be shared. Investment pitches that don’t provide the context of relevant risks, limitations, and historical returns are a form of “fake news.”
Legally Hiding the “Casualties”
Huge national mutual fund companies receive much regulatory scrutiny, but many still use loopholes to muddy the factual waters. Because these firms offer dozens or even hundreds of investment options, there will always be a few that are doing well just by sheer luck. Mutual fund marketers will trumpet their five-star performers while hoping investors ignore the losers. And if a fund does poorly for a while, they just kill it, closing the fund and thus hiding the terrible losses they created. This ploy is one way some Wall Street firms can legally maintain an illusion of being talented money managers. In reality, many of them just churn money while taking fees. The numbers are real; the illusion created isn’t.
Wealthy People Keep Many More Books in Their House
You’d laugh if you heard that a marriage counselor was recommending head covering as a way to lower America’s astronomical divorce rates. While our relatively low divorce rate is strongly correlated with (i.e. corresponds with) our 100% rate of head covering, yarmulkes and sheitels alone don’t cause marital harmony. I’ve never heard of this novel approach to couple therapy, but confusion over cause and correlation is extremely common. It’s essential to be on guard for this mental fallacy which can lead otherwise smart people to make very foolish conclusions. One example is concluding that simply buying books makes families wealthier, the above statistic notwithstanding.
Some state governments spend a fortune mailing free books to each child in their jurisdictions. These programs are based on the fact that affluent households tend to have 23 times the average number of books versus low-income families. While book ownership is correlated with wealth, that’s no proof that owning books causes wealth. The rich are also much more likely to own Teslas, tulips, arugula, Rolex watches, and dachshunds (i.e. they’re all correlated with wealth). Should the government send those items to poor homes to increase wealth creation? Once you think about it, you’ll likely conclude that the causation may well work in the opposite direction: being rich brings (causes) book ownership just as it causes tulips and Tesla ownership.
Read Less. Think More.
Now, owning more books (or more likely, reading more books) during childhood may be both correlated and a partial cause of wealth. But maybe not. The data needs to be gathered and properly interpreted before proposals and changes are implemented. Assuming so is just jumping to weakly founded conclusions.