The narrative fallacy then refers to the propensity to engage in story-telling, summarizations, and simplifications to reduce the dimension of matters. People are vulnerable to over interpretation preferring neat sequential stories over raw truth. Take for example the media’s propensity to explain movement’s in the financial markets. The same weak economic data can be used by the media to explain either a rally or a selloff. If the market rallies on the bad economic numbers the media will attribute the rally to an increase in the likelihood that the Federal Reserve will cut rates or an increase in the chance of the government passing a stimulus package. If the market sells off, then the media will attribute the selloff to the same weak economic numbers and the lower corporate earnings that will ensue.
Another example of a narrative fallacy would be the widely held belief that the assassination of JFK involved a conspiracy. A recent ABC news poll found that nearly 70% of Americans believed there was a cover up of President Kennedy’s assassination. There are at least five JFK assassination conspiracy theories ranging from the Russians, to the Cubans, to the mob, to the CIA, to the History Channel’s version of the secret service/LBJ conspiracy. The raw truth is there was no conspiracy. Lee Harvey Oswald was the lone gunman. Then why do most insist on a conspiracy? People find it hard to believe that someone as inconsequential as Lee Harvey Oswald could have assassinated someone as consequential as John F. Kennedy. They have to search for a reason they have to look for an explanation for therapeutic purposes. Similarly, most engage in categorization even though categorization leads to pathology and distorts reality. Reality is often sacrificed for simplicity.
