Why investors need a diverse media diet

“a great many people think they are thinking when they are merely rearranging their prejudices.” – William James

According to investor and author Michael Mauboussin, three conditions must be in place to tap into the wisdom of crowds: diversity, aggregation and incentives. A diverse group of people reduces the collective error since over and under estimations should cancel each other out. Aggregation ensures that everyone’s information is accounted for. Finally, incentives encourage people to participate only when they think they have an insight that provides a valuable addition to the collective knowledge base.

Unchecked devotion to the wisdom of the crowds is folly however! When one or more of the three conditions of the wisdom of crowds are violated you should watch out. And the most important one to watch out for is diversity, which unfortunately is also the most likely condition to fail.

Since humans are naturally social animals we sometimes have a habit of following what our peers are doing, making decisions based on the actions of others, rather than based on our own private information and insights. These so-called ‘information cascades’ explain booms and crashes in financial markets and why fashions and political extremes come and go. As Charles Mackay tells in the book Extraordinary Popular Delusions and the Madness of Crowds:

“Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, one by one.”

A diverse media diet can highlight those risks and opportunities that others are not seeing, or perhaps don’t have the right incentives to shine a light on. The media may want to ensure access to their well cultivated and powerful sources, and so fail to puncture an unsustainable narrative. Equally, a diverse media consumption can be a source of ‘signals’, highlighting emerging trends in far flung markets before other media sources. This gives the smart investor a potential advantage over the competition.

Diversity of thought can’t be tied down to specific categories. Our age, our wealth and income, the circle of friends that we keep, and of course our upbringing and family background all affect how we think. However, our biases tend to be on show when its clear where our differences lie – gender, race and our political point of view.

Gender bias

Research has found that men enjoy an out-sized influence in both conventional and social media. According to the Women’s Media Centre men receive a disproportionate share of by-lines and TV credits. In a survey of 28 American news outlets in late 2017 that analysed over 52,000 pieces of content, researchers found that almost two-thirds of by-lines in American reporting credit men.

These gaps are even larger for coverage of subjects that are traditionally of greater interest to men. Women were least likely to report on sports, registering a mere 10% of by-lines in print media and 21% online. In contrast, they made up a majority of reports about lifestyle and health. The gap was also noticeable in fields that are especially relevant to our future. When it came to issues like finance, business and politics women accounted for between 34% and 40% of by-lines.

The size of the gender gap varies widely by publication. At USA Today, just 31% of by-lines credited women. Conversely, a few online outlets, including The Huffington Post and Vox, managed to achieve gender parity.

The type of media broadcast also shows significant divergences in diversity. Online publications are typically more balanced (46% women) than print (38% women). Meanwhile, evening news broadcasts are the least balanced, with men reporting three times as much as women.

Male journalists also enjoy out-sized influence on social media. A study published in the International Journal of Press/Politics found that male journalists have twice as many Twitter followers as their female colleagues do. They are also slightly more likely to be verified, an accreditation the site grants to prominent users. Male political reporters form an echo chamber, amplifying the voices of male co-workers three times as often through retweets as they do for female colleagues.

Men tend to dominate comment boards across the Internet too. Dr Fiona Martin of Sydney University analysed comments from 15 major websites and totted up the gender of the top 100 commenter’s. On international sites men accounted for as much as 79%. Women were slightly more likely to comment on local news sites, but men still dominated the conversation.

Racial bias

Two New York Times journalists, Rachel L. Swarns and Darcy Eveleigh aimed to uncover the historical erasure of African Americans from news organisations by examining unpublished photos in their own papers archives. It wasn’t long before they confronted racial bias in photo editing. One example was photographs that ran in the New York Times following a tennis match in the early 1960s in which Arthur Ashe defeated Dennis Ralston:

“This is a story that we pretty much found was a blatant example of racism and bias by editors at the time,” Eveleigh said. “Arthur [Ashe] was the No. 6 player at the time, and he upended the No. 1 seed. But the next day, the paper ran two photographs of the white loser and not a single photograph of the black winner.”

This was an obvious example of racism. It also gave the media consumer a completely false perception of the reality that unfolded on the tennis court that day.

Despite the passing of time racial bias may still exist in the media, it just isn’t as obvious. It’s worth reflecting that when compared with the make-up of the population there is an under-representation of minorities in the US media. In 2017, only 16.6% of journalists at American daily newspapers were non-white. This compared with more than 37% of people in the US population. Meanwhile, according to a 2015 poll, more than three-quarters of the guests on Sunday morning TV shows were white.

Racial diversity is important so that the media can accurately reflect the events occurring across very different communities, but perhaps even more importantly portray people’s underlying hopes and fears. In the absence of the context behind why individuals or groups act a certain way we are liable to only judge it based on our own values and experience of life. This of course may be a very blinkered view of the world.

Political & ideological bias

When compared with bias due to gender or race, one might argue that there is nothing harmful with bias based on someone’s political affiliation. Nevertheless, an environment where political parties command unswerving support from their own base and unswerving loathing from the opposition is not one conducive to rational reporting or discussion. Indeed, in his book How Change Happens author Cass Sunstein argues convincingly that many of us now dismiss entire groups of people on the basis of their political affiliation – something he calls ‘partyism’.

The impact of political bias was highlighted by research carried out by The Knight Foundation and Gallup in 2017 in which they created an experimental news platform (the same study mentioned in Chapter 11). Recall that the researchers discovered that a reader’s trustworthy rating of a news article is the sum of: an article’s inherent qualities, the reader’s personal views and brand prejudice.

But the research also unearthed some insights into who is most likely to suffer from bias. Those people with the most extreme political views, and were least trusting of the media were found to be the most biased. The content of the news also affects the degree of bias – political stories generate significantly more bias than those about economics or science.

Politics transcends national borders of course. The media in different parts of the world offer very different perspectives on how a story or event has unfolded. They too will have their political bias, but it may be very different from the left versus right bias that you see in your own country.

Consider the reaction from the media following the uprisings in Tunisia, Egypt and other countries across Africa and the Middle East. The media coined it the ‘Arab Spring’, but that was a misnomer. For while the liberal media rushed to interview those protesting in the city streets with bold signs, they mistook them for the voice of the people.

Another example comes from the reaction of the American led deal to curtail Iran’s nuclear ambitions. While the Western media concentrated on the positive Israeli reaction, they ignored the Arab world’s displeasure that the deal didn’t go anywhere near far enough.

Diversity of thinking can also be reflected in the media’s attitudes to different financial markets. This could take the form of being unfairly critical of the benefits of ESG investing; failing to see the fail the benefits of hedging against a decline in dollar hegemony (gold and bitcoin are dismissed as worthless) or being too focused on domestic markets (investors get a narrow picture of the available landscape of investments).

Whatever the subject, if its prone to political and ideological bias its important to consume a diverse diet of media views.

Bias may not be obvious

In his book The Tipping Point, author Malcolm Gladwell recounts an experiment by researchers from Syracuse University. During the 1984 US Presidential campaign they videotaped the male news anchors from the three nightly news networks – Peter Jennings from ABC, Tom Brokaw of NBC and Dan Rather from CBS. Excerpts were shown (with the sound turned off) to a group of randomly chosen people who were asked to score the emotional content of the expressions of the three men.

Tom Brokaw’s and Dan Rather’s expressions were equally neutral when talking about either Democrat or Republican candidates. In contrast Peter Jennings’ expression lit up when he talked about the Republican candidate. Just looking at pure story selection alone ABC (Jennings’ employer) was shown to be the network most hostile to the Republican’s.

How much of an influence did the subtle pro-Republican bias in Jennings face have? Well, the researchers found that those voters who watched ABC voted Republican that year in far greater numbers than those who watched CBS or NBC. In 1984 Republican nominee George Bush went on to win the election. Four years later Bush was up against Democrat candidate Michael Dukakis. The experiment was repeated, with the exact same results.

Finally, it’s worth noting that just because media organisations (or any group of people for that matter) appear to be diverse and unbiased doesn’t mean that they necessarily are. Consider a situation where a media company has 50% male and 50% female journalists and that 30% of the total are of non-white ethnicity (broadly representative of the population of the United States). If all of the male journalists were born in New York, went to the same Ivy League school and learnt the tricks of the journalism trade at the same university then it’s unlikely that they will exhibit particularly diverse thought.

How to have a more diverse media diet

– Recognise that all media sources are biased: Despite what they might say, all sources of media are biased in some way or another – political, financial, social, etc. Each news source is an amalgamation of people of varying kinds; the best you can hope for is a mix that balances itself out.

Deliberately consume media with opposing biases: You might not agree with anything that the source says but at least you have a much richer picture of the issues on both sides of an argument. In the UK this could mean reading both The Telegraph and The Guardian newspapers. When it comes to international issues consume media from other parts of the world too. It may offer a completely different perspective on the story.

– Seek diversity: Get opinions from people that know a little about a lot of things. These types of people are not married to a single explanation for complex problems, and can spot and incorporate learnings from other unrelated subjects. Follow more female journalists on Twitter and other social media platforms. Follow and engage with a wider range of people from different backgrounds.

– Be a bridge between tribes: Information often fails to penetrate into a particular social group if its members are too closed off and show little diversity. By acting as a bridge between these groups and others, and with the outside world you can help correct the spread of misinformation.

– Find the best aggregation of diversity: If in doubt seek the views of a media outlet or outlets that do the best job in aggregating the views of a diverse group. Avoid the evening news broadcast and look for your news from one of the more gender / racially balanced media outlets.

– Recognise that bias is communicated in a variety of different ways: Around 93% of communication is estimated to be non-verbal (55% body language and 38% tone of voice), leaving just 7% to the actual words spoken. The exact percentages are irrelevant. Even if only half of how we communicate is non-verbal, it’s clear that bias could be communicated in a way that would not be picked up by analysing the content of a story or message. The ability to spot non-verbal bias will become ever more important as the content we view online migrates towards video.

– Explain how something works: Try sketching out, in detail the relative merits of a particular issue. Once you start doing so you will soon come to the realisation that you know far less than your strident views suggest. Explaining what you know, and don’t know can have a humbling effect.

As billionaire investor Charlie Munger artfully highlights, it is important to be able to understand someone else’s perspective before getting into an argument: “I never allow myself to hold an opinion on anything that I don’t know the other side’s argument better than they do”.

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