Humans love stories. Whenever some event happens, we are driven to find a cause for it as if to dismiss the event as an obvious and inevitable effect. If the stock market crashes, thousands of pundits readily appear on TV to tell us why it did, where the economy is going, what we need to do about it and how they’ll fix it. But if these pundits are so prescient, then where was their warning BEFORE the crash? When someone succumbs to an illness, there’s almost always someone to point out WHY it happened to them, and it’s almost always about some behavioral cause. The person who got sick was a chain smoker, or they ate too much fast food, or they didn’t exercise enough. In his 2007 book, “The Black Swan,” Nassim Nicholas Taleb points out that in most cases, the cause of an event is unknowable. We do not know what caused World War I, but we do know it was not simply the assassination of Archduke Ferdinand. Yet we are all conditioned to look for causes and effects, even when there isn’t one at all. This inability to look at events without creating a story connecting them has been termed the “Narrative Fallacy.”

In this article, I want to examine 3 fundamental aspects of this phenomenon:

  1. Is the narrative fallacy a fundamental aspect of human cognition and are we hard-wired to look for patterns and causes in everything around us, even when there aren’t any?
  2. What are the benefits, if any, of the narrative fallacy, and how can we leverage them?
  3. What are the drawbacks, if any, of the narrative fallacy and how can we avoid them?

This work will be as comprehensive as I am able to make it, but will necessarily be limited by the constraints of time. The nature of this article is to examine a phenomenon and try to understand it in as much depth as possible. Where I make assumptions, I will try to make them explicit. As a species, our limited ability to separate sequences of facts has often proven to be a fatal flaw, and I hope to shed light on why this might be.


We begin a formal definition of the narrative fallacy: The narrative fallacy refers to the human tendency to create a story or explanation for any event, even when the story or explanation has no basis in fact. In this case, the narrative fallacy is not so much about creating stories out of facts, but rather creating them even when there are no facts to explain anything.

The Narrative Fallacy is a broad term that encompasses several related tendencies such as post hoc ergo propter hoc (after this therefore because of this), confirmation bias (we tend to only remember the facts that support our beliefs), and the availability heuristic (we tend to judge how likely something is by how easily we can think of examples of it).

The first of the two words, “narrative,” is used as it describes the process of creating a story, a sequence of events that occur in time. Simply put, a narrative is an account of events that relate to each other in some way. We see this all around us, most notably in the news with the 24-hour news cycle. This concept is key to understanding the narrative fallacy because this process of creating a story out of unrelated events is essentially what it describes. The second word, “fallacy” is used to describe the fact that humans are making errors when they create a narrative to explain things. Just like any other logical fallacy, it is a mental shortcut that makes us think something is true when it very well might not be.

Working Examples

Within this article, I want to give some working examples of the narrative fallacy in action. There are countless varieties, but to keep our analysis simple, we will keep referring to the 3 examples described here.

The predictable stock market

Photo by Markus Spiske on Unsplash

The Dow Jones Industrial Average (DJIA) is one of the most common measures of the health of the stock market. It is composed of 30 large companies that are publicly traded in the US, and reflects their collective value. The DJIA has gone through numerous historic highs and lows, including several that are well remembered by most people: March to October 1929 (known as the Great Depression), October 1987 (known as Black Monday), and October 2008 (referred to as the Financial Crisis). In each of these instances, the DJIA hit a historic low that was viewed as a turning point in the overall market. As you might imagine, there are many people who believe that they can predict when the DJIA will “bottom out” and start increasing again. These people are using the narrative fallacy to explain what is going on with this economic indicator. They use historical information (the fact that it has always bounced back) to create a story about what will happen in the future. They know nothing about why it reached its low, or what was driving the movement in the first place. They know nothing about how things are different this time (which would negate their ability to predict). Perhaps most saliently, they simply don’t know that they don’t know. With any market pullback, it’s common to hear some type of reasoning describing that the market was “due for a correction” or some other form of rationalization that is based on the narrative fallacy. Of course, this reasoning can be applied in the other direction as analysts and common folk alike rationalize that because company XYZ is creating a product, then the company will prosper. In both cases, whether the market goes up or down, there are people (professionals and common folk alike) that will rationalize the market movement.

The truth is far more complex than the simple “if-then” logic that is used to drive everyday thinking about the stock market. Daily studies are available that purport to explain the past, present, and future of the stock market by using these techniques. Many of these studies are nothing more than elaborate computerized versions of “if-then” logic.

For example, if you were to study a price chart for the S&P 500 (SP) from 1996 through 2001 and observe that the SP had been going up, then you would have a “fact” to support your belief that the SP will continue to go up. This is because you’ve observed a pattern in the data, and you use your brain to create a causal explanation for that pattern. Most stock chart traders use some permutation of simple “if-then” logic to predict the movement of the market with varying degrees of accuracy. The problem is that these traders have no evidence that their “if-then” logic works over any period of time. They are simply assuming that because it worked in the past, it will continue to work in the future. These people are applying a mental shortcut based on their subconscious bias towards narratives and confirmation bias. It’s not that they are lying or trying to deceive anyone, they just believe that the market will continue to do what it has done in the past.

The key point here is that there is no rational reason for believing that this “if-then” logic will work. It’s a belief, not a fact. It’s a belief that is based on nothing more than the human tendency to create stories about everything and anything. This tendency isn’t limited to stock traders or people looking for patterns in the market, it is something that we all do. We all have our own biases towards narratives and confirmation bias, and we will all rationalize our beliefs using these mental shortcuts.

The myth of success

Generally speaking, successful individuals attribute their success to their hard work, intelligence, and various other factors. A successful businessperson will often describe their success in terms of things like “I worked really hard” or “I was smarter than my competition.” If a successful person is humble enough to realize the role of luck in their success, it doesn’t take much for adoring fans to spin that luck into a good narrative about the person’s hard work, intelligence, or focus. Driven by quotes like “Everybody has talent, but ability takes hard work,” by the G.O.A.T. Michael Jordan, it seems that the media and fans are constantly searching for ways to explain success as a product of effort.

Photo by Mike Von on Unsplash

If it’s not sheer effort, then we assume a person’s success is due to their superhuman intelligence. There are countless examples of people who attribute their success to things like a high IQ, or some type of super memory. However, for every successful person that has a Herculean work ethic or genius level intelligence, there are countless more with just as much innate ability that never see the same level of success. This is because the success of these individuals is only partly a function of their innate ability and hard work, and is mostly a product of some luck, or perhaps the lack of it in some cases.

Consider the story of Elon Musk’s meteoric rise to billionaire status is based on hard work and intelligence. The story goes that he was an extremely hardworking computer science and physics student, and now he’s the CEO of Tesla Motors, Inc., SpaceX, SolarCity, and co-founder of PayPal. The story also goes that he was accepted into Stanford, but dropped out to pursue his entrepreneurial dreams.

The reality is far less palatable to the human tendency to create stories. While he deserves praise for his innate abilities, luck plays just as strong a role in his story. But a series of events that don’t necessarily have a causal connection somehow doesn’t feel satisfying. The narrative fallacy forces us to look backwards and connect the dots leading us to the conclusion that Musk’s success is a product of his hard work and intelligence.

The inner monologue

Perhaps the most dangerous example of the narrative fallacy is the stories we tell ourselves on a daily basis. We tell ourselves stories about how well we are doing at work, in school, in our relationships, and in the world. We create narratives that explain why good things happen to us or bad things happen to other people. In short, we tell ourselves stories that serve as a rationalization for our situation. Unfortunately, the narrative fallacy is far more dangerous in this context than it is when stock traders try to predict the market or a halo is put upon the successes of society. The reason is that the narrative fallacy is constantly at work in our minds. We are constantly telling ourselves stories about how our lives are going and how we can make them better.

Photo by Caleb George on Unsplash

When you combine this with the fact that the brain is easily distracted, you have a recipe for disaster. This is because the average person has no internal mechanism that forces them to question their own internal narratives. Most people don’t realize that they are telling themselves these stories, and even if they do realize it, they have no way of differentiating between the stories that are true and the ones that aren’t. This is because they don’t know how to question their own internal narratives, so they will never be able to tell the difference between a story that is based on fact and one that is based on fiction.

Consider the rationalization that occurs when something bad happens, say getting stuck in traffic. It’s common for people come up with a story that explains why they were stuck in traffic. For example, “If I left 5 minutes earlier, I wouldn’t be stuck in traffic,” or “I didn’t check the traffic report before leaving the house.” The problem with these stories is that they are not verifiably true. There is no guarantee that if you left 5 minutes earlier you wouldn’t get stuck in traffic. It’s just as likely that you would have been stuck in traffic even if you left 5 minutes earlier. The second story is equally problematic because checking the traffic report isn’t a guarantee that you won’t get stuck in traffic.

We all tell ourselves these sorts of stories on a daily basis, but the problem is that we have no way of knowing if the story is true. The only thing we can know for sure is that the story won’t be true 100% of the time. This means that we constantly tell ourselves stories that are based on nothing more than our own biases and mental shortcuts. We tell ourselves these stories because it makes us feel better about the situation, but there is no rational reason for believing the story to be true.

This is where the narrative fallacy becomes dangerous. It’s not enough to simply tell yourself a story, you have to believe it as well. Otherwise, you would never make that mistake again. The problem is that most people don’t realize they are believing these stories. They don’t realize that they have no rational reason for believing the story to be true, so they take it at face value. This seemingly innocuous mental shortcut can be a recipe for disaster. The power of narrative fallacy is that people will believe the story to be true even when it becomes clear that the story isn’t true. People have a need for a compelling story more than they need the truth.

Are we hard-wired for narratives?

In short, yes, but let’s dig a bit deeper to see why. First, the types of stories that we tend to believe fit similar archetypal patterns. The “if-then” logic is common throughout most narratives, but don’t be fooled, this is more than just a simple cause and effect. For example, the story that you tell yourself when you get stuck in traffic is an if-then story. But the sequence of events is far from predictable. Second, narratives that fit a pattern are shortcuts for the brain to make sense of the world. Instead of analyzing every possible variable in the story, we take mental shortcuts and fit them to a pattern that we have seen before. The brain is constantly looking for patterns, and once it finds one, it will try to fit everything into this pattern. Finally, the narrative structure allows us to conserve the most expensive resource that we possess: attention. Novel thinking is biologically expensive, and if we didn’t have a way of conserving our attention, it would be hard to imagine how we would get anything done. The propensity for the human brain to constantly look for patterns explains why we seek explanations for everything. The narrative fallacy is the byproduct of this pattern seeking tendency that we all possess.

What does this have to do with the narrative fallacy? The fact that narrative structure is a shortcut for making sense of the world means that it is a powerful tool. Most things in life can’t be understood in isolation; some arrow of relationship is needed to connect the dots. Without narratives, we would have to spend our very limited attention to discern the relationship between things. We couldn’t focus on the task at hand because we would have to constantly question why the task was important and how it fits into a broader context. This is why narratives are so powerful, they give us a simple way of understanding the world around us.

The history of science shows the never ending march towards compression: we seek to explain more and more with less and less. Fundamental breakthroughs tend to be the result of finding a new way to compress old ideas. Just think about Einstein’s Theory of Relativity, or Newtonian Mechanics before it. These breakthroughs were the result of discerning new patterns that allowed us to compress our understanding of the world into concise mathematical equations.

Similarly, narratives help us compress the world around us. They allow us to understand the world by telling us how things fit together. In fact, most of our beliefs can be understood as narratives: religion, history, even science and technology are all stories that help explain the world we live in. The narrative fallacy isn’t so much about believing a story as it is about creating a new explanatory narrative for every situation we face.

But what drives the need for explanation? The famous 1977 study by Ellen Langer and her colleagues at Harvard University called “The Copy Machine Study” demonstrated that giving explanation when making a request results in better outcomes. When people were given an explanation, even if the explanation did not add any information, compliance for the request went up markedly. This illustrates how narrative structure is powerful, even when the story itself is useless.

The benefits of the narrative

Let’s face it, most decisions are not life-and-death nor do they have serious ramifications. The narrative fallacy is a byproduct of our natural need to understand the world around us. In many cases, the story you tell yourself isn’t wrong, it just doesn’t add any value. Connecting dots that don’t necessarily need to be connected doesn’t always cause harm and in some cases, it can actually be helpful. As discussed above, the narrative structure is a convenient way to compress information into a familiar pattern. By seeing how new events fit into this pattern, you can better understand the world around you without having to spend that incredibly costly attention.

Another benefit of the narrative is in convincing others to do what you want. By telling a story that connects the dots, you can make others believe in your story, despite its veracity. If you can successfully tell a compelling story, then others will trust your judgment and be more willing to follow along. As we’ve learned from Peter Parker’s Uncle Ben, “With great power comes great responsibility.” Having a powerful narrative is nothing more than a means to an end. A key aspect of the narrative fallacy isn’t simply believing your inner monologue, but convincing others that your story is true. So if you find yourself trying to explain some abstract idea, consider wrapping it up in a narrative.

Note, that the benefits mostly involve utilizing the narrative structure without the fallacy. The structure is undeniably useful, but it becomes a problem when it’s believed wholesale without discerning the truth.

The drawbacks of the narrative fallacy

While the benefits mostly concern utilizing the narrative structure to explain something, the drawbacks are where the “fallacy” aspect comes into play. For example, when you are trying to explain something to someone else, it’s important that they understand the truth. If they misunderstand what you are saying, then there is no point in even discussing it. The feeling that something is “too good to be true” is often an indication that you are trying to force a narrative onto a situation that doesn’t fit.

The narrative fallacy is dangerous because it causes you to lose sight of reality. When the story becomes more important than the reality, then you start down a slippery slope. Most of the elaborate frauds of history ranging from Bernie Madoff to Theranos were all started with and propagated by a story. As I’ve discussed in “The myth of success,” the successful individual attains a narrative halo that adoring fans are happy to construct. The same is true in the case of frauds in progress since the victims of fraudsters are constantly looking for ways to justify the apparent success.

The narrative fallacy also leads us to a path of abstractions that don’t necessarily hold up under scrutiny. Consider the “Copy Machine Study” discussed above. When people were asked “Excuse me, I have 5 pages. May I use the Xerox machine?” only 60% complied. However, when phrased, “Excuse me, I have 5 pages. May I use the xerox machine, because I have to make copies?” compliance soared to 93%. If you analyze the actual request, you’ll see that it’s not actually explaining anything. The only reason to use the xerox machine IS to make copies! So even the illusion of an explanation was enough to convince people that the request was legitimate and should be complied with.

So… now what?

The problem of the narrative fallacy isn’t that we think in narratives, it’s that we don’t give enough attention to things that don’t fit that narrative. Most narratives serve as a convenient tool for understanding the world around us. There is nothing wrong with a narrative as long as you are willing to scrutinize the story to ensure that it is true. To be sure, discerning the narrative fallacy isn’t always easy, but we must remain on guard lest we fall prey. When the stakes are low (like the traffic example), you might be fine defaulting to a narrative since it’s easy enough, and it REALLY doesn’t matter if you’re wrong. When the stakes are high (like how to invest your money), maybe consider avoiding narratives and try to analyze the data points without having to weave a story.

To be clear, the narrative fallacy isn’t about believing a story, it’s about forcing a story onto unrelated events. This is why I have been referring to it as the narrative fallacy instead of the narrative effect. The fact that we have a need to understand the world is not in question, it’s just a matter of scrutinizing the stories we tell ourselves and that we hear about others. Perhaps the simple conclusion is that attention is expensive and narratives provide a way to decrease that expense. But sometimes… it’s worth it to spend that expense.

For more about The Narrative Fallacy, please read:

The Narrative FallacyWhy thinking in stories isn’t always the right thing to do

Why we succumb to narrativesHow beliefs form from stories

Building products + communities with code. Entrepreneur with more losses than wins. Lifelong learner with a passion for AI+ML / #Bitcoin.