Unconventional Wisdom
Words That Matter
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Financial pundits, watch your tongues after the stock market closes: Whether you describe the market as having "climbed" or "stumbled lower" rather than "increased" or "decreased" has a direct impact on what the market will do the next day.
That's because so-called agent metaphors -- words or phrases that describe the market as if it were a person or living thing -- produce the expectation that the action will continue, leading investors to buy or sell, claims a research team headed by Michael W. Morris of Columbia University's business school.
Some market-moving metaphors favored by analysts include "the Dow fought its way upward" and the S&P 500 "searched for a bottom," Morris said.
"We tend to respond to these metaphors in the way that we are programmed to interpret human actions -- namely, as indications of volition and future behavior," he said.
In contrast, metaphors like "fell," "drifted" or "bounced" suggest "movement of inanimate objects, buffeted by external physical forces" and carry no promise that whatever happened in the market today will persist tomorrow, Morris and his co-authors claim in a paper to be presented at the annual meeting of the Academy of Management, which begins next weekend in Honolulu. Collaborating with Morris on the study were Oliver J. Sheldon of Cornell University, Daniel R. Ames of Columbia and Maia J. Young of Stanford University.
The word "climbed" causes market activity but "fell" doesn't? Wow -- not only are markets intelligent, they're sensitive, too. Who knew?
To measure how metaphors move markets, the researchers put 64 college students through a series of tests. They gave each participant copies of six pages that contained information on the performance of the Nasdaq index on a particular day. They varied the use of metaphors in the descriptions and asked students to predict what the market would do the next day.
Consistent with their hypothesis , students were twice as likely to predict that tomorrow's trend would be the same as today's after reading the metaphor-laden pages than after reading those that used other words or phrases, Morris said.
Then the researchers combed the transcripts of CNBC's daily wrapup show on the market and coded each metaphor the commentators used. Again, they found, the market's movements the next day showed a significant correlation with the types of metaphors used. In addition, they found commentators tended to use market-moving metaphors when the market went up but were less likely to do so when it went down.
But why do we think a "sprinting," "climbing" or "searching" market will continue to sprint, climb or search the next day?
"Our minds are not wired to understand random systems, so we often impose patterns where they may not exist," Morris said. "Expressions like the 'hot hand' in basketball or 'hot bat' in baseball convey the notion that a player's chance of success is greater" the next time he shoots or gets up to bat -- a belief that persists even though extensive scientific research has found little or no basis for it. Our study suggests that agent-metaphors foster a similar and equally dubious expectation of continuity in the stock market."
Closet Bigotry
Not that many decades ago it was easier to identify bigots: Just listen to them. In those bad old days, people felt free to say all sorts of ghastly things. But in these supposedly more enlightened times, a new study suggests that even racists have learned to keep their toxic opinions mostly to themselves.