Financial Foundations Framework, Leadership, Ethics, and Trust

Of Narratives and Numbers

Narratives and Numbers

It is probably safe for us to assume that finance officers are more comfortable with numbers than most of the decision-makers that the finance officer supports. These decision-makers are likely more comfortable with narratives. Numbers are often part of the conversation, yet psychological research shows that people often grossly misunderstand and/or misuse numbers in favor of their preferred narrative. Of course, finance officers are people too, so even with a better understanding of numbers than most people, finance officers can fall prey to the same pitfalls as less numerate people. If we better understand the relationship between narratives and numbers, then we can structure decisions more wisely.

In this article, we will explore narratives and numbers in four parts:

  • What we see is all there is. We tend to overemphasize the information that is most tangible or available. Numbers are often abstract by comparison.
  • We string that into a causal story. People are good at finding patterns. Often, this is a big advantage; however, it can lead us to find patterns where there are none.
  • We continually confirm that story. We want to be right. We tend to overweight information that supports our preferred conclusions and discount information that doesn’t.
  • We translate our inferences imperfectly. We are not good at self-evaluating how accurate our stories are.