The Importance of Storytelling Ability

I’ve always thought that the financial markets acted as something of a real world experiment on human nature. Markets are interactive, involve a wide range of individuals making decisions and provide a scorecard that’s available for people to track in real-time.

Watching the 24/7 news coverage of the presidential primaries kick into overdrive makes me realize that politics are like the markets on steroids. I’m constantly amazed at how quickly the narrative can shift from hour-to-hour depending on the latest vote, speech, soundbite or social media quip. Emotions are the enemy of good financial decisions, but politics make the markets look tame in terms of the excess in ideology, overconfidence, confirmation bias, fear, greed and envy.

There are people out there who still believe that our elected officials get to office because of their ideology, policy agenda or even their intelligence. Sure, these things matter on the margin, but the most effective politicians are the ones who have mastered the power of persuasion. They have the ability to subtly shape and even form the electorate’s opinions and feelings without tipping them off to the fact they’re controlling the entire narrative.

My favorite study I came across while performing research for my book dealt with the power of narratives on perceived value:

The experiment was designed to test the hypothesis that “narrative transforms the insignificant into the significant.” What these researchers did was take 100 items of garage-sale quality that weren’t worth much and try to dress them up with nothing more than a narrative by having volunteer writers craft fictional back-stories on each item to sell them on eBay. In total, the objects they bought cost less than $130. But once these inexpensive items were paired with a good story behind them, they were able to net over $3,600 in sales on eBay! A good narrative transformed a simple shot glass into a $76 sale. An oven mitt went for $52. A jar of marbles was sold for $50.

The takeaway here is how powerful stories can be on our perception of value. We prefer emotional stories to accurate data because we are emotional beings. It’s part of who we are. It would be easy to label this human character trait as another flaw in our behavioral make-up, but the power of a narrative isn’t always a bad thing.

The acclaimed book Sapiens: A Brief History of Human Kind describes how humans made the leap from relatively tiny groups of simple hunter-gatherers to the more complex modern world full of enormous cities, cultures, groups and organizations. It wasn’t necessarily a technological break-through that did the trick. It was our ability to tell stories:

How did Homo sapiens manage to cross this critical threshold, eventually founding cities comprising tens of thousands of inhabitants and empires ruling hundreds of millions? The secret was probably the appearance of fiction. Large numbers of strangers can cooperate successfully by believing in common myths.

It’s not always the facts of the story that matter either (as anyone who’s ever watched a political debate or commercial can attest to). The narrative combined with the power of persuasion is what causes large groups to pay attention and act on the behalf of perfect strangers. Here’s more from Sapiens on this:

Telling effective stories is not easy. The difficulty lies not in telling the story, but in convincing everyone else to believe it. Much of history revolves around this question: how does one convince millions of people to believe particular stories about gods, or nations, or limited liability companies? Yet when it succeeds, it gives Sapiens immense power, because it enables millions of strangers to cooperate and work towards common goals. Just try to imagine how difficult it would have been to create states, or churches, or legal systems if we could speak only about things that really exist, such as rivers, trees and lions.

Of course, not all narratives are about concealing the truth in order to get your way. Story-telling can be used for good or evil. Being able to tell your story is important in many different facets of life.

In job interviews you have to be able to sell yourself, your experience and your value to a company. Anyone selling a good or service has to perfect a short elevator pitch to bring in customers. Entrepreneurs must be able to sell themselves and the vision of their company to potential investors. Investment managers and financial advisors must be able to craft their message to explain their investment process. Marketers must be able to grab your attention and get people to remember what they’re pitching. The list could go on.

Charlatans can get away with selling powerful false narratives for a long time assuming they’re persuasive enough. But eventually people (well, most people) start to wise up when powerful stories aren’t backed up by legitimate actions or truth. Maybe I’m naive, but I still think that honesty and transparency can form the foundation for a great narrative. People who deliver a powerful message, actually believe in what they’re saying and follow-through with it are the ones who will see longevity in most parts of life (politicians may be able to skirt this issue because their terms don’t call for longevity).

There’s still something to be said for the ability to do exactly what you say you are going to do.

Sapiens: A Brief History of Human Kind

Further Reading:
How Framing Affects Investment Outcomes & Decisions