MICHEL PIREU: Beware the quick and dirty explanations that tell us nothing
An ad hoc explanation isn’t an explanation. It’s a way of coming up with a story that seems to fit what’s happened, usually without any evidence that it is correct. Jane is dating Joe, who is very much like her. Jane’s friend explains the pairing by saying "birds of a feather flock together". When they break up and Jane starts dating someone completely different to her, the explanation is that "opposites attract". In fact neither is a real explanation of Jane’s motives for dating who she is dating. Like Jane’s friend, market analysts tend to rely on post-hoc explanations to explain market behaviour. When a stock falls in price for no obvious reason, for example, they’ll happily put it down to profit taking, based on little more than the fact it went up in price before coming down. And while that might not be true, it fits, has a nice ring to it (better to take a profit than a loss, as probably happened) and avoids the speaker having to say, "I don’t know", which is more likely the t...
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