Posted By 
By John De Goey, CFP, CIM
Special to Financial Independence Hub
The very first thing Prime Minister Mark Carney did upon taking office was to scrap the consumer carbon tax. Depending on your degree of cynicism, the move was either desperate or brilliant. There is not much middle ground. He did so while noting that the tax had become divisive.
Few would disagree. The very large majority of economists who study the subject argue that putting a price on carbon is the most efficient and effective way of curbing CO2 emissions. Nobel laureate William Nordhaus has shown this convincingly. Despite the evidence, retail investors simply hated the scheme.
Sometimes there’s a major disconnect between public policy and retail politics. Sensible policies can be rejected because a large percentage of the populace is determined to make decisions based on emotion rather than rationality. People will do what feels good you respective of what the evidence says.
It has been proven many times over that four out of five Canadians were better off paying the tax while cashing the rebate cheques, yet a large percentage of those same Canadians rejected putting a price on carbon at the consumer level. Since about 89% of all emissions come from industrial outputs, the political capital gained by Carney in dropping the consumer portion of the tax far exceeded the opportunity cost of a marginal emissions reduction. Why do so many people viscerally hate policies that conspicuously work against their own self-interest?
Confirmation Bias and Cognitive Dissonance
I believe the answer lies in both confirmation bias and cognitive dissonance. Simply put, people believe what they want to believe:
- a) because it makes them feel good; and
- b) because they engage in herding behaviour and conform to groupthink
It seems a substantial percentage of the human population actively resists evidence. Sometimes, that resistance appears in the form of political populism where ‘elites’, ‘globalists’ and ‘intelligentsia’ are rejected in favour of whatever populist leaders pass off as ‘common sense’. Confirmation bias is essentially pretending to look for evidence dispassionately, well actually looking for evidence that merely ‘confirms your priors.’ Stated differently, if you were predisposed to disliking a tax on carbon, no evidence to the contrary would have likely changed your opinion.
Similarly, in investing, there are several long-held beliefs that many people harbour that often go unchecked. Some are factually false, while others are merely dubious and open to interpretation and debate. In all cases, however, there is at least some suspension of disbelief to protect a pre-existing viewpoint that simply feels better than the evidence-based alternative. Continue Reading…
Posted By 
