My last post got me thinking a bit more about uncertainty and decision making. It reminded me of a podcast I had listened to a while back, on uncertainty, storytelling and hedge fund managers.

It is based on the work of David Tuckett at University College London.

This is the line that I remembered. In the interview Tuckett said, “Fund managers have too much information but never enough; therefore [they] have to gain conviction for their actions by telling themselves stories.”

Tuckett is an economist turned psychoanalyst who has been studying the emotional underpinning of financial markets.

In the podcast he is discussing how hedge fund managers make investment decisions. What fascinated me was this underlying idea of how these men (in most cases) manage uncertainty and ambiguous information. According to Tuckett’s analysis they are not the typical caricatured geniuses or hucksters. They are relatively decent people who want to do right by their clients.

The trouble is, they are deluged with information.     

The uncertainty in this instance arises not from the absence of information, but the inability to tease apart the relevant information from the irrelevant. Yet they have no choice but to make investment decisions, with the information before them. Decisions that are consequential for them and their clients.  Without clear decisive information, Tuckett says, they can quickly become overwhelmed with anxiety.

And how do these men cope with the need to make decisions in the absence of information?

According to Tuckett, the only way they can overcome anxiety and find the conviction to act is by inventing stories. They essentially create a narrative to justify their actions, whether it is to hold on to certain shares or to sell them.

Here is what he says:

“Stories involve weaving facts together within an imaginative context.  The specific stories managers  told  me  about  the  individual  securities  they  chose  to  buy,  sell  or  hold  were  woven to  legitimise  the  sense  that  their  choices  were  linked  to  their  general  strategy.  They also had to  create  the  emotional  conviction  both  to  allow  them  to  tie  the  initial  knot  when  making the  investment  (creating  a  dependent  relationship)  and  then  to  allow  them  to  tolerate impatience  and  doubt  so  that  they  could  remain  attached  to  their  decisions  for  the  length  of time necessary  to  let  things  work.”      
Listen to the podcast:[ It is about 20 min into the podcast. ]

Here is the paper:

Tuckett’s overall concern seems to be the culture of “group think” these men are in, rather than the actions of individual managers. His work is mainly a critique of the so called “rational” framework of economic theory.

But it made me wonder, could they have done this differently? Would any of us have acted differently faced with the same deluge of murky information? Perhaps a narrative, of some sort, however delusional is necessary when faced with this kind of ambiguity.