How the Mind Makes Its Own Truths

The Evolutionary Roots of Self-Deception: Why We Believe Our Own Stories
Truth-telling is often celebrated as a moral virtue, but our capacity for honesty is deeply tangled with our instinct for deception—both toward others and ourselves. Long before moral codes or social contracts, evolution had already wired into us a sophisticated relationship with truth, one that balanced the benefits of persuasion with the costs of being caught.

The Psychology of Deception
Humans, research shows, are remarkably good at lying—but only moderately good at detecting lies. Over time, social living made deception dangerous: the more time we spend with someone, the more likely they are to read our subtle cues—hesitations, diverted gazes, and nervous breaths. Yet one trick proved evolutionarily powerful: if we believe our own lies, the cues vanish. This is the evolutionary bedrock of self-deception.

By deluding ourselves, we become more convincing to others. Belief becomes armor, authenticity a performance perfected through genuine feeling. Over time, this emotional sincerity evolved into what we now call a moral sense—our ability to truly believe in right and wrong, and to feel pride or guilt accordingly.

When Bias Shapes Belief
Even in modern times, our ancestors’ mental shortcuts continue to steer our thinking. One of the most common traps is attribution bias. We praise our own successes as signs of effort and intelligence but dismiss others’ fortunes as mere luck. Conversely, our failures are “bad luck,” while others’ mistakes reveal “character flaws.” This double standard keeps our self-image intact, but it comes at the cost of objectivity.

Then comes the availability fallacy—our tendency to overestimate the likelihood of an event based on how easily examples come to mind. Hear about a plane crash or a shark attack, and suddenly the world feels perilous, even if the real odds haven’t changed. Media amplifies this, turning rare events into perceived norms.

Relatedly, the law of small numbers tricks us into thinking that a handful of cases represents a broader truth. Investors often fall prey to this bias, mistaking short-term market moves for meaningful trends. The smarter approach—though less instinctive—is to step back and look at the long-term picture, just as climatologists do when studying temperature patterns over decades, not days.

How Evolution Shapes Economic Thinking
Our ancestors’ survival depended on small numbers—every family member, ally, or prey animal mattered. As a result, the human mind evolved to interpret the world through stories rather than statistics. Even in modern economies of billions, we still think in the personal language of narratives and meaning-making, not in probabilities or abstract models.

Economist Richard Thaler’s endowment effect reflects a similar inheritance. We value what we own far more than what we don’t—roughly twice as much, according to experiments. This instinct once made sense for hunter-gatherers living with scarcity; today, it keeps us clinging to possessions, investments, and decisions long after logic says we should let go.

Why Cognitive Dissonance Persists
When our actions conflict with our beliefs, we feel discomfort—a tension known as cognitive dissonance. To resolve it, we often retell our story until it makes emotional sense, even when it contradicts reality. Studies show that the reasoning parts of the brain fall silent in these moments, while emotional and reward centers light up. We literally feel better when we rationalize our mistakes.

This need for consistency drives everything from political loyalty to poor investment choices. A trader may hold onto a losing stock because admitting the mistake feels worse than the financial loss itself—a textbook case of the sunk-cost fallacy.

The Market Mind
When viewed through the lens of evolution, the financial market is simply a vast, modern arena for ancient instincts. Billions of traders act out the same emotional patterns that once guided tribes through risk and reward. The law of large numbers ensures that strange things will happen daily—massive wins and losses, unpredictable swings—yet our brains remain wired for meaning, not randomness.

Even professionals, studies reveal, rarely outperform long-term indexed funds. The mind of the market, like the mind of its participants, is less rational than we like to think.

The Paradox of Honesty
Our ability to lie, rationalize, and believe our own stories once helped us survive in small groups. Today, it helps explain why truth-telling—and the willingness to admit mistakes—feels so morally profound. In a sense, honesty is an evolutionary counterweight to deception: a principle powerful enough to preserve trust in a species evolved to outsmart itself.

Source – The Mind of the Market: Compassionate Apes, Competitive Humans, and Other Tales from Evolutionary Economics by Michael Shermer

Goodreads –https://www.goodreads.com/book/show/1960096.The_Mind_of_the_Market

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