People Get Creative When Explaining the Market Correction

One of the more fascinating aspects about people and markets is how uncertain we are about what will happen next, yet so cocksure in our explanations of what just occurred. This raises an overlooked question: If it were so simple and predictable -- obvious, even -- then why didn’t we see it coming in advance and prepare for it?1518195266421

Today, we shall consider some of the causes of the past week’s market unpleasantness. But before we do, we need to preface our remarks with an admission of error. Our wetware suffers from what psychologists describe as narrative fallacy and hindsight bias. In short, as a species we both like to tell stories -- it makes thing more memorable -- and we believe we have the ability to foretell the future, a power we clearly don’t possess.