HH Blindsided By Brexit Bias


The result of the UK’s referendum on the EU caught markets by surprise. They’d soared the previous day in the expectation of a Remain vote and were thrown into turmoil when it turned out a majority of the British were less concerned with economic stability and more with mass immigration.

The polls leading up to the referendum were finely balanced; if they were to be believed then the result was far from certain right up to the end. Yet many people took the market surge at face value – that markets were pricing in known information –  and that a Remain vote was in the bag. But it wasn’t, and the whole thing is behavioural bias writ large. Not that anyone will actually learn the lessons of course.

Wishful Thinking

Brexit bias is a casebook example of what Charlie Munger calls the Lollapalooza Effect, where a number of different psychological issues combine to cause a cascade. Each issue on its own is perhaps manageable, but when combined they’re an unstoppable force for wilful stupidity.

Perhaps the over-riding issue amongst investors was wishful thinking. It’s clear from the demographics of the poll that Remain voters were disproportionately from the London area, were better educated and tended to be younger. Not unsurprisingly these people are the ones that have benefited most from EU membership and, I surmise, are most likely to be among the movers and shakers in UK stockmarkets.

Confirmation Bias

In fact, one of the more noticeable oddities in the lead up to the referendum was the way that Leave voters only seemed to know other Leave voters and Remain voters only other Remain voters. This was an early indication of the split through British society that influenced the overall result. Unfortunately we know all about what happens when people get stuck in closed groups benefiting from mutual support for their ideas – it’s the ideal breeding ground for confirmation bias. If no one is gainsaying your views then you’re even less likely than normal to challenge them yourself.

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Gary Anderson 3 years ago Contributor's comment

Thanks Tim. Ultimately, the key issue is not immigration, it is being able to hang onto your own currency. While that does not afford the growth that we have seen in the past, it always exceeds Eurozone growth, which is nil.

David P. Goldsmith 3 years ago Member's comment

Excellent article which really sheds light on the entire #Brexit vote. It wasn't such a mystery after all...

Anastasija Janevska 3 years ago Member's comment

So excited to see you are back Tim Richards, great article!