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Thursday 17 July 2014

V is for Von Restorff Effect

The Von Restorff Effect states that something that stands out is more likely to be remembered. So a highlighted item on a list is more likely to be recalled than the remainder of the list items. The effect demonstrates the unreliability of memory, which isn't any kind of photographic process but is a more complicated affair, generated on the fly from bits and pieces of information we can bring to mind.

Example

The inadequacy of our memories has been demonstrated repeatedly by Elizabeth Loftus, who was able to plant false memories in the participants of her experiments to the point that they were unable to differentiate between what had really happened to them and what had not. When asked to talk about the fake experiences people would happily elaborate tales about these non-existent events.

Her point, unsurprisingly, is that relying on uncorroborated evidence for anything simply isn't safe. It's all too easy to plant memories in people's minds.

Causes

The Von Restorff Effect is specifically triggered by availability - the outstanding item on a list is made more available to our memories, and is therefore more likely to be recalled. People will tend to invest in stocks they remember because either they're popular or they've recently been in the news. In essence we're biased in favour of remembering the unusual. Unfortunately relying on our memories to recall possible investment targets isn't really a very sensible approach.

In fact memories are not recalled but are reconstructed - and they're reconstructed in our own image. So  simply relying on memory to make important decisions of any kind is not at all sensible.

Mitigation

We need to avoid relying exclusively on our memory for ... well, for anything. This is why we need to write things down - especially our reasons for making investment decisions, and why we need to review those decisions frequently. Checklists and diaries are a straightforward way of achieving this, but try to avoid onerous and complex processes - we simply don't stick to them. Remember, we're only human, after all ...

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