Most of us, often, suffer from the illusion that our memories are fairly accurate, especially of things we've experienced first hand. Remember that huge football or baseball game your favourite team won or lost 10 years ago? Remember who made the biggest play? Our memories of these things aren't nearly as good as we think. Countless studies have shown that eyewitnesses are notoriously poor at remembering key facts accurately. A few years ago I got hold of an old recording of a Washington Redskins Superbowl victory from 20 years ago -- the details of which I thought were etched with prefect accuracy in my brain. I was stunned on watching to find out that I had mis-remembered who had made big plays, where they were on the field, when in the game the plays happened, and so on.
What happens in remembering sporting events happens in remembering the rest of our lives too, I'm afraid, and this new set of experiments shows just how easily our memories can be altered by the social influence of people around us. The paper is very well written and doesn't need much explanation. Micah Edelson and colleagues from the Weizmann Institute of Science in Israel had volunteers watch an eyewitness documentary, and then several days later tested their ability to recall facts without any interference, or after being presented with memories as recounted by some other individuals. From their abstract:
We examined how socially induced memory errors are generated in the brain by studying the memory of individuals exposed to recollections of others. Participants exhibited a strong tendency to conform to erroneous recollections of the group, producing both long-lasting and temporary errors, even when their initial memory was strong and accurate.More profoundly, the study went on, using functional brain imaging, to look at the sites in the brain where these memory changes took place. The volunteers weren't merely reporting something they didn't actually remember just to fit in; their brains actually changed under social pressure, so they remembered something different.
This reminds me of another fascinating result from a few years ago in experiments run by a team led by Gregory Berns of Emory University, who re-examined the famous 1950s experiments on social conformity of Solomon Asch. Berns and colleagues did the experiment in such a way that they could tell that conforming volunteers -- who were effectively discarding their own observations in favor of those reported by others -- weren't just trying to fit in. Social pressure actually made them see the world differently, and specific mechanisms in the brain made it happen.
As Edelson and colleagues note, this new effect has long been discussed in the social psychology literature and is known as "memory conformity" -- our memories, like other aspects of our behaviour, conform to social pressure. As I said, I don't know immediately how this fits into economics and finance, but it must have some pretty important consequences. Conformity is certainly one mechanism by which all manner of social trends get started, amplified and perpetuated.
As a British friend of mine told me in 2005 -- having just taken out a mortgage on a third speculative property purchase -- "housing prices never go down". I don't think he had done any independent research to establish this as fact. But he had been reading and listening to the prevailing atmosphere of ideas -- and his brain had been physically altered as a result.