Atlas of Cognitive Biases #26 · Information and beliefs. A story told after the fact always fits
What it looks like in trading
“the market fell because…” after every session
headlines explaining a move after the fact
believing that once you understand the cause, you'll predict it next time
An example from a session
After a decline the media write that “the market fell on rate worries”. When it rises the next day amid the same worries, they write that “the market shrugged off the worries”. The story always fits, because it was written after the fact.
What the research says
Nassim Taleb (2007) popularised the term narrative fallacy. Pennington and Hastie (1988) showed that jurors judge evidence through the story they've built: the more coherent the story, the more confident the verdict, regardless of the strength of the evidence.
Building coherent causal stories out of random or complex events. A good story gives a sense of understanding that isn't really there.
How does the narrative fallacy show up in trading?
Typical signs: “the market fell because…” after every session; headlines explaining a move after the fact; believing that once you understand the cause, you'll predict it next time.
Educational content, not psychological advice or an investment recommendation.