The importance of having accurate beliefs is most powerfully demonstrated by looking at the successes achieved by people who use fact-based analytical approaches to deal with life as opposed to those who use anecdotes, conspiracy theories, propaganda, and other ideologically-based approaches to making decisions.
The first example comes from the business world. In 2007/8, business leaders, such as the US Treasury Secretary, the Federal Reserve Chairman, finance and real estate executives, investment bankers, financial advisors, and rating agencies all asserted that residential mortgages would never default and that they were very attractive and safe investments. The reality turned out to be quite different. Billions of dollars of mortgages did, in fact, default, bringing down major financial institutions worldwide, driving the global economy to the verge of collapse, putting millions of people out of work, and causing the worst economic and financial crisis since the Great Depression.
Most people, who just blindly accepted the assurances of Wall Street and the rating agencies and didn’t do their own independent thinking, suffered severe investment losses. On the other hand, a handful of smart, hard-working people, including Michael Burry of Scion Capital, Steven Eisman of Front Point Capital, and Jamie Mai, Charlie Ledley, and Ben Hockett of Cornwall Capital, all did their own extensive, in-depth research into the mortgage market, the quality of the securities offered, mortgage delinquency data, the validity of rating agency assessments, and then went into the field to see what was actually happening in the marketplace.
They unearthed a very different view of the market. They decided the whole business was on the verge of collapse, and proceeded to short mortgages securities as well as the stock of companies operating in the field. They took brutal criticism from their owners/investors for taking a position that contradicted conventional wisdom; and, in addition, every month that they retained their short position, they had to pay a substantial monthly premium to their securities originators. But, because they were so confident in their facts, they were able to stick with their position and, in the end, they made staggering sums of money. The superior financial outcome was the direct result of their having undertaken research and analysis efforts that let them understand the objective reality of the business that almost everyone else completely missed.1
A second example comes from the world of sports. Building a baseball franchise and recruiting top players is a challenging enterprise. It historically was a business run by scouts, managers, and team owners based on subjective experience, individual perception, tradition, instincts, and myth.
Billy Beane, the General Manager of the Oakland A’s changed the structure of the business by exploiting the significant statistical information available, but not effectively used, in baseball. He was really the first to take advantage of the available data to develop a set of quantitative success factors for the game. He debunked many baseball myths perpetrated by the group that historically made talent and game decisions based on gut instincts and subjective judgment.
For example, the “old guard” believed in the value of bunting, stealing bases, and drafting high school vs. college players, while his data suggested they hurt rather than helped performance. Beane stressed instead the critical importance of runs scored, on-base percentages and walks. He used his analysis findings and conclusions to acquire a set of players that would fit the newly developed success factors, that allowed his team to the produce the league-leading offense with the second lowest player salary budget of any team in Major League Baseball. He did this, in spite of significant resistance from his scouts, his manager, and his coaches. The result: Oakland won more games with less money than any other team in the league, demonstrating the superiority of facts and evidence over tradition, outmoded practices, and subjective impressions. The benefit of Beane’s fact-based approach was eroded away as other teams saw what Oakland was doing, copied them, and even advanced the science. But that doesn’t negate the value of Beane’s fact based, analytic approach.2
A third illustration of the power of analytical thinking evolves from a study of wars between countries. In warfare, detailed information about the whereabouts of enemy troop concentrations, positions, movements, and available weaponry will inevitably be decisive. Those who have correct information about the reality of the battlespace, and actually put it to use, will have a stunning advantage over those who don’t. Once again, having the facts and understanding objective reality will be decisive. In war, as in life, unsupported beliefs will fail.
During the Gulf War in 1990-91, this information advantage proved decisive. The side that was flying blind lost badly.
“The fight looked to be a tough one; but it wasn’t... The reason: tactical information systems worked reliably, and the creation of the Joint Surveillance and Target Acquisition System, so closely interlinked to all friendly forces, worked at the broader operational level to give the Allies a full synoptic view of the battlespace. By comparison Saddam Hussein’s troops had to fight virtually blind. It was this information edge that enabled a lopsided victory to be won in just over ninety-six hours of operations on the ground.” 3
Surprisingly, the techniques that helped investors, sports managers, and military leaders achieve great successes in the examples above also apply to ordinary people in their daily lives. For example, American psychotherapist, Albert Ellis, revolutionized modern psychotherapy by making sure that “reason, science, and rationality would remain top priorities in the evolution of psychotherapeutic techniques.” In 1957, he developed a new approach to help his patients, called Rational Emotive Behavior Therapy or REBT. It has become a standard in the field. REBT practitioners use critical thinking and scientific methods to resolve the challenges of daily life.
“REBT practitioners challenge their clients to look for evidence to support unsound and harmful irrational beliefs and to test the assumptions behind them.” “When clients recognize their beliefs as irrational, REBT therapists encourage them to adopt flexible and non-dogmatic alternative views. For example, instead of clinging to the anxiety provoking idea they must absolutely not be rejected by anyone, clients are encouraged to question whether rejection is catastrophic.”4
These examples help demonstrate the value of gathering fact- based evidence and using disciplined processes to develop belief positions that are consistent with objective reality. There are clear benefits to using analytic thinking and intensive information gathering to win life’s competitive battles and become a psychologically and emotionally balanced person. Those advantages stand in stark relief to the very negative consequences of ideologically-driven beliefs.
Lewis, Michael, The Big Short, New York, NY, W.W. Norton and Company, 2011.
Lewis, Michael, Moneyball, New York, NY, W.W. Norton and Company, 2003
Arquilla, John, Bitzkreig, The New Challenge of Cyberwarfare, Cambridge, England, Polity Press, 2021
Knaus et al, Where’s the Evidence?, Free Inquiry, D/J 07/08, Pp 38-43