The science behind the research

My last post about this paper summarized the results. I want to talk briefly about the science behind it. I am not going into serious detail, but just to present an idea. So forgive any oversimplifications for those of you who know a lot about neuroscience.

When we make something up - not just lies or exaggerations but also daydreams and that kind of stuff - we use mirror neurons. Mirror neurons are a place where we can create simulations that do not become part of our long term memories. But they are of course connected because we need to use our basic cell assemblies to construct the simulations. It is in this connection that we get into trouble.

Over time, our brain is not able to differentiate which of these connections was part of a simulation and which ones were real. The simulations are weaker, so they have less of an effect on long term memory construction than real memories. But they still have the effect and over time can build up if you exaggerate (or lie, or daydream) a lot.

And knowing that this is happening doesn't help. We can't access the specific neuronal connections and delete them. Unfortunately, we can't control our brains to this level of detail. So our long term memories are stuck with the bad data.

And in order to be convincing in our exaggeration, we create supporting arguments. Even though we know these to be exaggerations too (otherwise, the exaggeration wouldn't be an exaggeration), we have multiplied the strength of the mirror neuron structure many times over. So whatever impact it has on long term memory is multiplied.

Another factor that makes this work is called cognitive dissonance. This is when two thoughts that we have are in conflict. For example, when we exaggerate we know that it is dishonest. And we don't like to think of ourselves as dishonest. So unconsciously, our brains try to convince ourselves that the exaggeration is really true. We feel better as a result. But then, the mirror neuron schema is treated more like a real one and has an even stronger impact on long term memory. The problem just gets worse.

Financial regulations can't work if we don't even know we are biased.

There is a lot you can learn about bias and lying from reading this. I will stick to just one point today. I found the most striking result to be that when you exaggerate, that exaggeration sticks with you and pulls at what you know to be the truth. And you don't know how powerful this is, so you can't stop it.

Basically, what they did was ask subjects to give advice on financial transactions. In some cases, there were financial incentives to make the advised price as high (for the seller) or low (for the buyer) as possible. Then they offered these same individuals a financial reward for giving their true estimate of the value. This last part was done in private so they wouldn't feel obligated to continue their exaggerations to avoid looking like liars. What they found was:

• after exaggerating to the low side, their "true" opinions were still too low (although not quite as much as their exaggerations). They couldn't ignore what they had said previously, even though they knew they were exaggerating and were being paid extra for being accurate this time.
  
• after exaggerating to the high side, their "true" opinions were still too high. Same thing.
• they admitted that they were probably influenced by their previous advise, but significantly underestimated the actual impact.

Then they replicated the study for business pressure (trying to make a client happy by exaggerating something's value, rather than trying to make more money). The same thing happened. Even stronger!!

The authors discuss the implications here for financial regulations. Create big fines or strong regulations can't work if the auditor or broker doesn't even realize they are giving bad advice because of these unconscious influences. The only way would be to prevent the original conflicts. Auditing would have to be completely separate from advising. Brokers would not be allowed to work on any kind of volume commissions.

There are also implications in many other industries - legal, education, etc.