How social influence affects our decisions

By Larissa Fernand |  03-02-20 | 

Let’s talk about the Mona Lisa.

Leonardo Da Vinci’s masterpiece is considered to be one of the most emblematic portraits in the history of art. It sits behind bulletproof glass at the Louvre Museum in France and gets more than six million visitors each year.

What is its lure?

Some point to Da Vinci’s skill or technique.

Others point to the mysterious smile.

Here’s an interesting take on it.

Mona Lisa’s mysterious smile has been the source of immense debate among historians because different people see the smile in different ways based on the angle at which the painting is looked at. A professor at Harvard argued that the smile is best seen with one’s peripheral vision, which is why when looking at her eyes, her face and smile seem so striking. There is also a claim that based on how you’re looking at the painting, particularly what distance, her smile changes into a blank expression. A painting technique called sfumato, which means “soft” in Italian, may have been used in order to achieve this hallucinatory effect. It is still unknown, however, whether this effect was intentional or not. There’s also a lot of other scientific explanations for why different people view the smile differently.

A few years ago, at the Morningstar Investment Conference held in Chicago, Michael Mauboussin threw some interesting facts to the audience. Although the painting was always acknowledged as a masterpiece, for most of its existence, it actually wasn’t the most famous, or the most expensive, being valued only at about one-sixth of most famous paintings in the mid-1800s.

What changed?

No one knows for sure. But there is something to note. It wasn't until it was stolen in 1911 that it captured the attention of the general public. Newspapers spread the story of the crime worldwide. When the painting finally returned to the Louvre two years later, practically the whole world was cheering. Ironically, the theft and subsequent recovery of the Mona Lisa did a lot to raise the painting’s profile.

Besides the skill involved in the painting, and the drama around the theft, the opinions of others also played into perpetuating the success of one thing over another.

On the theme of the explicit impact of social influence, here’s a study that he referred to.

Sociologists at Columbia University, New York, recruited more than 14,000 people to visit a website with 48 songs by relatively unknown bands. People could listen to songs, rate them, and then decide whether to download them.

One group of participants saw only the names of songs and musical groups. Other participants also saw how many times a particular song had been downloaded by others. Both groups broadly agreed about which songs were good and which were bad.

But participants who could see how often a song had been downloaded tended to give higher ratings to songs that had been downloaded often, and were more likely to download those songs themselves. That created a snowball effect, catapulting a few songs to the top of the charts and leaving others languishing.

For instance, one song was ranked No. 26 by raters who couldn’t see the ratings of other participants. However, it was rated No. 1 in another group that could see others’ opinions, and No. 40 in a third such group.

Social influence (luck) catapulted an average song to the status of a hit in one world and relegated it to the cellar in another. This social process makes it difficult to predict the success or flop of a book or movie.

Skill and Luck are hard to untangle.

Human brains are hard-wired to see skill, even when little or none exists. “Your mind is allergic to randomness,” is how Mauboussin explained. “The mind wants to create a narrative to explain the effect you’ve seen. Then it begins to solidify that interpretation as the correct one, causing us to believe the outcome was predictable all along.”

Investors tend to systematically overestimate the roll of skill and underestimate the role of luck in their investment decisions.

There's actually a little part of the left hemisphere of our brains called the interpreter, and whenever we see an effect, for example, performance for our portfolio, we try to attach a cost to it. So, basically, it's this cause-and-effect loop that our minds are trying to close all the time.

Whenever we see especially good results, our minds naturally think that that's because of skill. Basically, the interpreter knows nothing about luck, so we can't really account for the substantial role of luck in investing.

So, it's this very interesting natural phenomenon that we all do that when we see success, we associate it with skill, even if luck is the key contributing factor.

In Skill or Luck: 5 pointers to keep in mind, we look at practical applications of these issues on the skill/luck continuum.

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