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Creative Research and How We Think

December 2013

I've always enjoyed discovering new ways of thinking in general, and new ways to look at various subjects specifically. So I like to read about the latest research that comes out of any of the many subject areas in which I have an interest, to see how the research was done. This is particularly true when there are creative research techniques used and the results show us something about our minds and how they work.

A good example of a creative study can be found in a study I recently read about in Shankar Vedantam’s book, The Hidden Brain. It had to do with publicly-traded companies that were newly listed on stock exchanges. Economists, and especially those who work in the field of behavioral economics, sometimes study how people make decisions about which stocks to invest in. This can be done by questionnaires which ask investors why they bought this or that. It can also be done by grouping investors according to the information they have, to see how having this or that data might affect decision-making.

With established companies there is always a lot of information available. If you want to know about Microsoft, for example, you can spend endless hours online, and for free, reading through financial statements and articles by analysts, or looking at charts of prices going back many years. But what about the new issues of stock, and especially for those companies that are not well-known? How does the average investor think about which of these to invest in and why?

To study this, psychologists Adam Alter and Daniel Oppenheimer looked not at earning reports or headlines or any of the usual things that might be considered in choosing to buy a stock. They looked at how easily the names of the companies could be pronounced. In his book Vedantam writes;

Alter and Oppenheimer tracked ten stocks with easy-to-pronounce names and ten stocks with hard-to-pronounce names on the New York Stock Exchange. They found that companies with easy-to-pronounce names outperformed companies with hard-to-pronounce names by 11.2% on their very first day of trading. After six months the difference was more than 33 percent. If you’d put a million dollars into the stocks with easy names and a million dollars into the stocks with hard names, the group with easy names would have outperformed the group with difficult names by $330,000.

It was also found that easy-to-pronounce stock ticker symbols led to higher price appreciation.

While perhaps suggesting a new investing strategy, this research also reminds us that we are not nearly as rational as we like to imagine. Of course, very few investors would ever admit that they bought a stock because of the simplicity of the name, nor would they even think that way consciously. It is an unconscious bias which is at work here.

This was fascinating in part because I have an interest in stock markets. Of course I’m also very interested in how unconscious bias can affect our thinking. But there is another element, which is the fact that these researchers were finding new ways of thinking about a subject. It makes me wonder what other experiments are waiting to be done, and what they might reveal if we can just dream up the new hypotheses necessary -- if we can just think about things in new ways. It is particularly exciting for those of us who do not have the position nor money to do expensive experiments in a lab. After all, this research could have been done for free using stock price quotes available online or in a newspaper.

So with that in mind, here are two questions we might answer using cheap or free research tools...

Are optimists or pessimists more objective?

To test this cheaply we would use the internet. We might have participants answer a series of questions to determine their level of optimism or pessimism. Following this we would have them read a few articles on a subject. The articles should be biased in subtle ways in order to elicit less-than-objective answers to the questions that follow. The point is to see who picks out the facts more objectively, and whether this correlates with pessimism or optimism (or are the more realistic people between these extremes the most objective. As with the following question, the main problem would be selecting a truly random group to participate, so the results do not simply reflect some selection bias.

Is intelligence related to religious faith?

An IQ test online that went along with a short questionnaire could be used to see if there is a correlation or inverse correlation between how intelligent people are and how much faith they have in various religious or spiritual ideas. Of course, if the test and questionnaire was simply open to any who chose to participate, the self-selection might skew the results (compared to the makeup of society at large maybe more atheists would take part in the study, or more believers, or more people of higher intelligence or lower intelligence). You would have to find a more random way to test people.

DIY Research

Thanks to the internet there are many interesting questions we can study without too much expense and without the backing of a university or other institution. As mentioned, the biggest hurdle to doing good research in these ways is finding a random selection of participants. That's a problem offline too, by the way. For any given hypothesis tested, there might be important differences between those people who choose to participate in research and those who would rather not. I hang up on every pollster who calls, for example, and I wonder if those of us who do this think differently in various ways, and whether that self-exclusion makes polling less accurate than it should be.

Here's your mental challenge for the day, if you want one: Try to imagine ways to reduce the potential bias in participant selection for research online and elsewhere, especially when the subjects of a study are not being paid.

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