Speculation in a Truth Chamber

In this piece, I’m going to share a mental exercise that we can use to increase the truthfulness of our thinking. The exercise is intended primarily for traders and investors, given their obvious (financial) reasons for wanting to think more truthfully about the world, but it has the potential to be useful for anyone in any field who has that goal.

Background: Motivated Cognition

As intelligent human beings, we have the ability to be truthful, i.e., to recognize and communicate the truth. We use that ability whenever we make genuine attempts to see and describe the world correctly, as it actually is. Unfortunately, our mental processes tend to be compromised by a phenomenon called “motivated cognition.”

Motivated cognition refers to our unconscious tendency to selectively process information in ways that suit ends or goals unrelated to the truth. Examples of such ends or goals include: (1) protecting our own interests (or the interests of those that are tied to us or that we see as being similar to us in some way), (2) sustaining positive images of ourselves and preserving or status and reputations in communities, (3) avoiding antagonism with others, particularly those whom we like or draw benefits from, (4) weakening the positions of those whom we dislike, distrust or view as threats, and (5) insulating ourselves from realities that, if acknowledged, would create dissonance in our values and commitments.

In many areas of life, our tendency to engage in motivated cognition benefits us. That’s not a surprise–if it didn’t benefit us, then it would never have evolved as a tendency in our species. The reason that it can benefit us, even as it moves us away from the truth, is that, in many areas of life, the truth doesn’t enforce itself. It doesn’t impose consequences on those who go against it. Examples of such areas include: politics, media, sales, entertainment, law, religion, and so on. In these areas, appearances tend to be more important than reality. Outcomes tend to be decided by the question of who does the best job of persuading people and of favorably impacting their feelings, not by the question of who makes the truest statements about the world.

But there is one area of life, near and dear to all of our hearts, where the truth does enforce itself, imposing severe consequences on anyone who dares to go against it. That area is the area of speculation. To “speculate” is to put something of value–usually money, but it can be other things–directly at risk on a belief. When a person speculates, she makes herself fully accountable to the truth. If she speculates correctly, in accordance with the truth, she gains a reward. If she speculates incorrectly, in opposition to the truth, she suffers a punishment. These incentives serve to sharpen her focus on the truth. They cause her to actually care about whether her descriptions of the world are correct. With real consequences at stake, she finds herself closely examining the evidence, carefully checking her reasoning, and taking seriously the possibility that she might be wrong–things that she is not as likely to do in other areas of her life.

A simple way to force our thinking to be more truthful, then, is to tie it to an act of speculation–not necessarily in the literal sense of placing actual bets on our beliefs, but in the imaginary sense of envisioning ourselves having to place bets on them, and observing how our stances change. For any issue that we might be confronted with, if we want to get ourselves to think about the issue in a more truthful way, free from the emotional biases and distracting incentives that tend to lead us astray, what we need to do is imagine ourselves in a situation where we are forced to speculate on it, with real consequences to be decided by whether we speculate correctly. In that state of mind, truth will become our primary focus.

Entering a Truth Chamber

To frame the point in a more vivid way, suppose that there is some question that we want to get ourselves to think about in a more truthful way. We can accomplish this by imagining something like the following:

(1) There is a way to conclusively resolve the question–for example, some perfect set of experiments or tests that we can conduct to get the answer, or an all-knowing God that can reveal it to us. The details don’t really matter here–what matters is that we know that we’re going to get the answer, and we know that when we do get it, any doubts that we or anyone else might have had about it will be eliminated. (Note: if it is hard to envision the question having a conclusive answer, then either it is not being framed precisely enough and needs to be reframed, or it is about certain types of subject matter–for example, moral claims and judgments of value–that do not purport to describe any actual reality and that reality therefore cannot answer).

(2) We are taken into a private booth to cast a vote on the question. Crucially, we are promised that no one will ever be able to see or know how we voted–not even our future selves, because our short term memories of the process will be erased. We posit this privacy condition in order to eliminate the possibility that our vote might be influenced by the anticipation that others will praise or shame us for it, or the concern that we ourselves will come to regret it. None of that will happen because no one, not even our future selves, will ever have a way to know how we voted.

(3) We are asked to specify things that we value in life and that we want more of–for example, money, resources, relationships, health, activities, leisure, achievement, respect, enjoyment, insight, peace of mind, beauty, admiration, something for others, something for the world, whatever. We are told that, if we vote correctly on the question, we will be given these things, in whatever amount or combination we need to be genuinely happy. And if we vote incorrectly, we will either receive nothing, or we will face a punishment, which could range from something negligible (e.g., loss of a trivial amount of time or money) to something  extreme (e.g., imprisonment, torture). As designers of the scenario, we would set the severity of the punishment based on how much urgency we want to inject into the exercise. Note that the more severe we set the punishment, the more anxiety we will be introducing into the deliberation, which can have the effect of clouding our judgment. We want to set the stakes at a sweet spot: enough to be a big deal to us and to motivate us to aggressively seek out the truth, but not so extreme as to overwhelm us with stress and impair our ability to think clearly.  For me, that sweet spot is probably: lots of wonderful things if I answer correctly, and a small loss of some money if I answer incorrectly.

On the basis of these imagined assumptions, we proceed to ask ourselves two questions. First, which way would we vote on the question? The answer tells us which side of the question we think is most likely to be true. Second, how much wavering, vacillation and uneasiness would we experience in casting that vote? The answer tells us how confident we are in our vote–and, by extension, how much uncertainty we should attach to our associated beliefs on the matter.

I refer to the hypothetical place that this exercise puts us in as a “Truth Chamber”, because being in it is like being in one of those sound-proof chambers used for hearing tests, which block out all background noise and allow us to detect tiny sounds that we otherwise wouldn’t notice. Entering a “Truth Chamber” blocks out all of the ulterior motivations that influence our cognition, and puts everything that we value at stake on the accuracy of our thinking. Unsurprisingly, in that setting, we become laser-focused on the truth, laser-focused on describing reality as correctly we possibly can. Instead of settling on the usual path of least resistance, which is to lazily embrace whatever conceptions of the world best fit with our interests and preferences, we find ourselves inquiring, questioning, searching, exploring, checking, challenging, and so on, all with the goal of increasing our chances of successfully arriving at the truth. In everyday life, outcomes tend to hinge on appearances and superficialities, and arriving at the truth doesn’t really matter. In a Truth Chamber, arriving at the truth is the only thing that matters, and it matters immensely.

Test Cases: Dangerous Ideas

In an excellent article from a few months ago, the well-known cognitive scientist Steven Pinker introduced a series of questions centered on what he referred to as “Dangerous Ideas”–ideas that could very well be true, but that we find inappropriate, offensive, threatening, and immoral. These questions represent good test cases for us to use in experiencing the mental “shift” that takes place when we approach questions truthfully, from the perspective of being inside a Truth Chamber.

So, pick a few questions from the article excerpt below, re-frame them as needed to make them sufficiently precise and tractable, and compare the different experiences that you have in trying to decide on answers for them (1) normally, without facing any consequences, and (2) from the perspective of being inside a Truth Chamber, where your entire future will hinge on whether you are able to answer them correctly, in accordance with the actual truth. Remember that even if you are not certain on the answer to a question, you still have to cast vote. It is therefore in your interest to take a probabilistic approach, choosing the answer that seems most likely to be true, given what you know.

Do women, on average, have a different profile of aptitudes and emotions than men? Were the events in the Bible fictitious — not just the miracles, but those involving kings and empires? Has the state of the environment improved in the last fifty years? Do most victims of sexual abuse suffer no lifelong damage? Did Native Americans engage in genocide and despoil the landscape? Do men have an innate tendency to rape? Did the crime rate go down in the 1990s because two decades earlier poor women aborted children who would have been prone to violence? Are suicide terrorists well educated, mentally healthy, and morally driven?  Are Ashkenazi Jews, on average, smarter than gentiles because their ancestors were selected for the shrewdness needed in money lending? Would the incidence of rape go down if prostitution were legalized? Do African American men have higher levels of testosterone, on average, than white men? Is morality just a product of the evolution of our brains, with no inherent reality? Would society be better off if heroin and cocaine were legalized? Is homosexuality the symptom of an infectious disease? Would it be consistent with our moral principles to give parents the option of euthanizing newborns with birth defects that would consign them to a life of pain and disability? Do parents have any effect on the character or intelligence of their children? Have religions killed a greater proportion of people than Nazism? Would damage from terrorism be reduced if the police could torture suspects in special circumstances? Would Africa have a better chance of rising out of poverty if it hosted more polluting industries or accepted Europe’s nuclear waste? Is the average intelligence of Western nations declining because duller people are having more children than smarter people? Would unwanted children be better off if there were a market in adoption rights, with babies going to the highest bidder? Would lives be saved if we instituted a free market in organs for transplantation?

Understandably, we have certain visceral reactions to these questions, and we’re inclined to want to say certain things in response to them. But when we entertain them from the perspective of being inside a Truth Chamber, a shift takes place. We realize that in answering them, we are no longer answering to our peers, to society, to ourselves, or to our values. We are answering to reality, an entity that simply is what it is and that doesn’t care about anything. Our focus therefore turns entirely to the truth, to describing that reality as correctly as we possibly can. We find ourselves asking questions such as:

“What’s likely to be the actual truth with respect to this question? Not what I want to be true, but the actual truth–what’s it likely to be?”

“Do I really know that? Am I sure? Could I be overreacting to something, or underreacting to something, or ignoring something, or suppressing something, or missing something important?”

“What do I have right now, in terms of evidence, to support my answer? Is the kind reasoning that I am using to get to that answer actually reliable?”

“What information can I go look at to get a better picture of the actual truth about this subject?”

The most important question that the exercise provokes is this last one. The exercise causes us to realize that, at this moment, we probably don’t know enough to reliably give answers to any of these questions, and that if we want to have strong views on them, we would be well-served by going out and doing more research. Importantly, our goal in conducting such research would not be what it normally is–i.e., to justify the answers that we’ve already committed to, so that we can “win” the debates that we’re having with our opponents on the question. Rather, our goal would simply be to get to the right answer, the correct answer, the true answer, whatever that answer happens to be. This is what it means to be truthful.

How the Exercise is Intended to be Used

I’m now going to offer some important clarifications on how the exercise is intended to be used.

First, the idea behind the exercise is not for you to literally walk through it, in full detail, every time you are confronted with a question that you want to think more truthfully about. Rather, the idea is simply for you to use it to get a sense of what it feels like to be genuinely truthful about something, to genuinely try to describe something correctly, as it is, without pretenses or ulterior motivations. If you know what that state of mind feels like, if you are familiar with it, then you will be able to stop and return yourself to it as needed in your trading and investment deliberations and in your everyday life, without having to actually step through the details of the scenario.

Second, the exercise is intended to be used in situations where you actually want to get yourself to think more truthfully about a topic and where you would stand to actually benefit from doing so. Crucially, that situation does not describe all situations in life, or even most situations. There are many situations in life where extreme truthfulness can be counterproductive, creating unnecessary problems both for you and for others.

Third, all that the exercise can tell you is what you believe the most likely answer to a question is, along with your level of confidence in that belief. It cannot tell you whether you are actually correct in having that belief. You might believe that the answer to a question is X when it’s in fact Y; you might have a lot of confidence in your belief when you should only have a little. Your understanding of the subject matter could be mistaken. You could lack the needed familiarity or experience with it to have a reliable opinion. Your judgment could be distorted by cognitive biases. These are always possibilities, and the exercise cannot protect you from them. However, what it can do is make you more careful and humble as a thinker, more open to looking inward and assessing the strength and reliability of your evidence and your reasoning processes, more willing to update your priors in the face of new information–all of which will increase your odds of getting things right.

Fourth, the exercise is not intended to be used as a tool to “win” debates against other people–i.e., to encourage lines such as “You would never say what you are saying right now if you had to bet money it!” Rather, it’s intended to be used as a tool to allow you to more clearly recognize what you consider to be most likely to be true, when you are being fully honest with yourself. It’s a private thing, not a public thing.

(On a side note, the concept of “motivated reasoning” has become very popular in intellectual discourse. I’ve seen a number of instances of people attempting to use it to attack the positions of those they disagree with: “Psychologists talk about this thing called motivated reasoning, and that’s exactly what you’re doing right now!” But in a debate, pretty much everyone is engaging in motivated reasoning, selectively searching for arguments and evidence to bolster conclusions that they’re emotionally attached to. It’s disingenuous for one side to “play the psychologist” and call out the other side out on it.)

Application: Quantitative Easing

At this point, I anticipate that at least some readers will have the following reaction to what I’ve said so far:

“This is all great, but why do traders or investors, in particular those that put their own money at risk, need any of it?  They already have a financial incentive to be truthful in their speculative activities, so what are they going to gain from an imaginary speculation-based exercise designed to increase that?”

The answer is that traders and investors are just as exposed to emotional biases and distracting incentives as everyone else. Like everyone else, they don’t like to confront unwanted realities, or abandon prior commitments, or admit to past mistakes, or acknowledge personal shortcomings, or embark on stressful changes of course, or accept perceived “defeat” in their disputes with their intellectual adversaries. The hope, of course, is that the monetary skin that they have in the game would be sufficient to get them to be willing to do all of those things, given what is at stake. But not all traders and investors have their own money in the game–most speculate primarily with other people’s money. For those individuals, the primary incentive is not performance per se, but maintaining the confidence of the investor base, a game that depends more on appearance and persuasion than on actual truth. And for those that do have their own money in the game, money is just money, it isn’t everything. If we want to reliably force ourselves to be truthful and honest a subject matter we are investigating, we need to imagine having more important things than money at stake–e.g., our well-being, our happiness, our freedom, etc. Only then will the quest for truth become sufficiently urgent to get us to diligently prioritize truth over the other forces tugging on us.

To conclude the piece, I’m going to illustrate the potential application of the exercise by using it on myself. To that end, consider the following contentious macroeconomic claim:

Claim: “The Federal Reserve’s third quantitative easing program (QE3), implemented at the end of 2012, provided a meaningful positive contribution to the performance of the United States economy from that date onward.”

(Note: Quantitative easing is a macroeconomic policy wherein a central bank creates new money and uses it to purchase existing financial assets in an economy–for example, already-issued government bonds. In most cases, the result of the policy is an increase in the broad money supply, but there is typically no net increase in the total quantity of financial assets in the system, because the money that the central bank puts into the system is offset by the financial assets that the central bank takes out of it.There is a contentious debate among economists as to the extent to which this policy is capable of stimulating economic activity, and under what circumstances.)

If you ask me whether the claim is true or false, I’m going to want to say that it’s false–that QE3, given its timing in 2012, provided a negligible contribution to growth, if any at all. But if I’m being honest, I have to admit that my inclination to say this is at least partially rooted in subtle emotional considerations that have nothing to do with whether the claim itself is correct. Specifically:

  • In the late summer and fall of 2010, when the Federal Reserve (Fed) started giving out hints that it was going to embark on a second QE program, the market rallied. I was positioned bearishly at the time, and instead of responding appropriately to what was happening, I entrenched in my bearish stance, missing out on sizeable market gains. The experience left a bitter taste in my mouth, and made me somewhat averse to the concept of Fed intervention. It’s a fairness thing–intervention represents a sneaky and self-serving “changing of the rules” in the middle of the game, and is unfair to those speculators who get caught on the wrong side of it. I empathize with that point of view because I was once one of those speculators. (To be clear, this is an emotional thing. On a rational level, I see how silly it is. The central bank is no different from any other market force that speculators are tasked with anticipating and responding to. Speculators who ignore or miscalculate it have failed to do their jobs and deserve whatever losses they incur).
  • To say that quantitative easing works to stimulate an economy is to say that the Fed is justified in using it. I don’t want to have to say that. I don’t want the Fed, or anyone else with power, to think that quantitative easing works, because if they think that it works, then they’re going to use it more readily in the future, which will cause yield opportunities in the economy to become more scarce and asset valuations to inflate. Financial markets will become more awkward to navigate and harder for me to earn a decent return in. I don’t want that.
  • I’ve had intense debates with other people on the efficacy of monetary policy, in person and online. I don’t want to have to admit that I was wrong in those debates or that my adversaries in the debates were right.
  • Quantitative easing is something that “works in practice, but not in theory”, which is to say that people can cite empirical cases where it seems to have helped stimulate economies that were suffering from weakness, but when you analyze what it actually entails at a fundamental level–the swapping of low-yield treasury bonds for low-yield bank deposits, two asset types that are roughly identical to each other–the theoretical basis for expecting a meaningful impact on an economy is weak. I’m a “theory” kind of person, I don’t like approaches to economics that casually bypass theory, and I don’t want those economists who have been pushing for such approaches to be rewarded with the satisfaction of having been right.

So those are my emotional biases. They aren’t really all that strong at this point, but they’re biases nonetheless. Their potential to distort my thinking is augmented by the fact that I don’t have to worry about being wrong in my views on the subject. There’s no way to know for sure whether QE3 was a meaningful benefit to the economy–there’s no reliable experiment that we can conduct to conclusively resolve the question. I’m therefore left with free rein to confidently think and say whatever I want on the topic, without fear of consequences.

Now, let’s set up a Truth Chamber on the question, to see if my deliberations and on the subject change when real consequences are held over me. We obviously need to make the claim more precise and amenable to resolution. Let’s translate “meaningful” into something like 0.25%.

Claim: “The Federal Reserve’s third quantitative easing program added an annual 0.25% (or more) to the real growth of the United States economy from its announcement in September 2012 to its September 2014 completion.”

This form of the question is more precise and easier to resolve. The way to resolve it is to literally create the counterfactual: rewind the universe back to September 2012 and let the U.S. economy grow from that point onward without QE3. If the growth rate with QE3 (which we already have data for) ends up being at least 0.25% higher the growth rate without QE3 (which we would get data for from the counterfactual), then the claim will have been shown to be true. Otherwise, it will have been shown to be false. To be fair, any outcome from this form of the experiment will likely have random variation embedded in it. To deal with that variation, we can simply run the rewind experiment a million times over: half the time with QE3, half the time without it. If the average growth rate in the trials with QE3 exceeds the average growth rate in the trials without QE3 by at least 0.25%, then the claim will have been proven to be true. And if not, then the claim will have been proven to be false.

Obviously, we can’t do this actual experiment. But we can imagine it being done–by God, or the White Queen, or whoever. Let’s imagine, then, that it is actually going to be done, and that I have been placed inside a Truth Chamber, forced to cast a secret vote on what the result will be.  If I vote correctly, I will be rewarded with a plentiful supply of all of the things that I value in life. If I vote incorrectly, then I will walk away with nothing.

Which way would I vote?

When I envision myself in the scenario, the first thing that happens is that my stomach tightens. My concentration sharpens and my mind focuses in on the claim. This is no longer about ego, or reputation, or grudges, or saving face. It’s about one thing and one thing alone: getting to the truth of the matter. I need to vote correctly, period.

Upon reflection, I would still say that the claim is “false”, that the difference in growth rates with and without QE3 would not have exceeded 0.25%. But unlike before, I find myself strongly questioning that vote. The stated number, 0.25%, is not a very large number, so my margin for error is not very high. If we were to set the number at something like 1%, I would be confident in voting false, but 0.25% is small enough to make me worry about being wrong.  With that said, it’s 0.25% annually over a two year period (2012 – 2014), so it’s more than just a blip.

With respect to the theory, QE may be a mere asset swap, but it has the effect of lowering long-term interest rates relative to what they would be without QE, which encourages potential homeowners and corporations to borrow. It also boosts asset prices, creating a wealth effect for the upper class that improves confidence and encourages spending. Neither of these effects was probably very large in the 2012 – 2014 period, but they still count for something. Also worth mentioning is the potential placebo effect of QE–right or wrong, many people believe QE to be efficacious, and that belief itself could have been stimulative to economic activity. Taking potential multipliers and nonlinearities into consideration, could the combined impact of these factors on the housing market, the corporate lending market, the equity market, and the general level of confidence and risk appetite in the U.S. economy have been sufficient to have added 0.25% annually in growth during the two year period? I have to admit, I’m not sure. I’m nervous to answer either way.

With respect to the empirical evidence, there have only been a handful of historical instances in which large QE programs have been implemented to stimulate weak economies. A recovery occurred in each of these instances, but it’s difficult to draw much of a conclusion from that fact, first because the sample size is very small, and second because there are an infinite number of potential confounding factors other than QE that can explain the observed result, the most important of which is the fact that weak economies tend to eventually recover on their own in time, without policymaker intervention. Still, the fact remains that in all of the historical instances that we know of in which QE was used to stimulate a weakened economy–the U.S. in the 1930s, Japan in the early naughts, and then the U.S., Europe and Japan in the current cycle–the economy eventually ended up improving. That fact has to count for something.

What the exercise reveals to me, then, is that I am not confident in rejecting the claim that QE3 had a meaningful positive impact on U.S. growth, where “meaningful” is defined to be 0.25% or more annually over the two year period. Whatever belief I might have about that claim, I need to recognize that it comes with substantial uncertainty.

Interestingly, one claim that I would be highly confident in rejecting, if I were inside a Truth Chamber, is the claim, put forward by certain fringe opponents of QE, that QE3 actually reduced growth in the US economy. That claim conflicts both with both economic theory and the available empirical evidence. If we were to run the experiment a million times over, with and without QE3, I would have no hesitation in betting against the claim that the QE3 trials would produce a lower average growth number than the non-QE3 trials. I would also be highly confident in rejecting the claim that QE, when used in the standard way to stimulate a weakened economy, creates a meaningful risk of an inflation spiral, as its opponents once warned. The actual results–in the US and elsewhere–seem to have conclusively disproven that claim.

If there is a final insight for me to glean from the exercise, then, it is probably this: Looking back at the Fed’s decision in hindsight, from the perspective of my own beliefs expressed honestly and truthfully, I would have to say that the Fed got things right when it decided to implement QE in 2012. There is a reasonable chance that the program worked to improve growth by a small but meaningful amount, and the program did not introduce any risks to price stability. Put simply, QE was a good risk-reward proposition for the Fed to take.


In summary, we human beings have the ability to think truthfully about the world, but our thinking often gets derailed by considerations that run counter to the truth. When that’s happening, it can help to stop and remember what it feels like to be in a state of mind where we are intensely focused on the truth. If we want to, we can journey into such a state of mind by envisioning ourselves entering a “Truth Chamber”, a private place where we are forced to make secret bets on our beliefs, and where our futures hinge on whether we bet correctly.

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