Halos and Angels
Huey Long, the late governor and senator of Louisiana, liked to say every man is a king, but no one wears a crown. Had he spent much time on Wall Street, he would have learned that many of its denizens wear halos. This is not to suggest angels work on Wall Street, but rather that the mind can bestow celestial qualities on people and even things: stockbrokers and successful investors, stocks, and mutual funds.
In many ways, the halo effect is similar to how people view investing or the market. They see the end results, but not the process, and thus make decisions or reach conclusions based on price, not value. Price is a seemingly concrete fact flashed in the stock market. Value is a measurement of price determined in the privacy of one’s mind.
Yet many heads are crowned with halos by people who see things as they wish them to be. Emily Pronin, a Princeton University professor who investigated the halo effect for the FINRA Investor Education Foundation, says the classic example of the halo effect is judging people you like as being more attractive and smarter than others.
Consider stockbrokers. Pronin conducted an experiment using a stockbroker who presented himself as an Ivy League graduate. He wore a suit and tie. She wanted to see if he would be judged as being especially competent and trustworthy. People were told the stockbroker graduated from Cornell University. The same “stockbroker” was also presented wearing an oxford shirt, but no jacket. People were told ...