The power of narratives

“The narrative is the set of assumptions the press believes in, possibly without even knowing that it believes in them". - from Stephen Hunter’s dialogue in The Third Bullet

Today we are going to discuss the invisible thread that weaves a story. If there is one thing you come away with it is that Narratives are so powerful that they create reality rather than merely conveying it. They frame a story yet often go undetected. We hear the word narrative used a lot:

• “The media’s narrative around that event has really shifted lately.”

• “She’s trying to change the narrative about her career success.”

• “There’s a common narrative that working from home decreases productivity.”

So what is a narrative?

A narrative is a device we use to organise events so they feel ordered. It’s not just what happened—it’s how and why things connect, adding meaning and perspective.

Example: Imagine two friends miss the same train. One says, “Typical! Everything always goes wrong for me.” The other thinks, “Brilliant, more time for a coffee with my friend!” Same event—two completely different narratives. The facts haven’t changed, but their stories shape entirely different experiences.

Narratives are as much a function of the events as they are the narrator. Like feelings they are shaped by our experiences. Narratives allow us not only to share what we have lived through but also how it fits into our view of the world.

Why do we crave narratives?

When anything happens, particularly when significant or bad, we often need to know 'why did this happen?'. We want clarity and meaning. Faced with complexity or randomness, our instinct is to simplify and create order. Narratives help us satisfy this craving by offering explanations that feel logical, even comforting. Whether in investing, politics, or personal life, we gravitate towards narratives that resonate intellectually and particularly emotionally. Generally our narratives help reinforce our existing beliefs and biases.

Narratives like the "Metaverse" and notions like the "Fed Put" are ideas out there that try and make sense of a series of market movements. They are often fitted after the fact, rather than being useful to help predict the future.

The problems with narratives

The narrative fallacy, coined by Nassim Nicholas Taleb, describes how we oversimplify reality into neat, coherent stories. Everything seems intentional rather than involving randomness, luck, and complexity. This telling neat stories:

• Lead investors to attribute success solely to skill rather than acknowledging luck.

• Encourage historians or analysts to rely too heavily on individual characters sometimes missing the bigger picture.

• Create dangerous overconfidence based on hindsight, such as viewing events as inevitable rather than being one of many potential outcomes.

  
  

How can we spot dodgy narratives?

We need to ask ourselves questions about any narratives:

1. Who is telling this story and why?

2. What evidence backs each claim?

3. What other explanation might there be for the evidence?

4. Does the narrative follow logically?

5. What language tricks (emotive, absolutist) are being used?

6. Have you cross-verified with other sources?

A newspaper like the Telegraph, for example, will take any story and spit out a headline that supports the Conservative party, is against immigration and is against the European Union. Most newspapers will conform every story to their chosen narrative. We are all guilty of it. An idea that makes a lot of sense to me is that we start with the view, and use rational argument to try and get there rather than the other way round. Jonathan Haidt's book, the Righteous Mind discusses this idea in more detail.

Constructing honest narratives

Narrative Principle	What It Looks Like in Practice
Who is it for and why are you writing this?	This is aimed at policy makers, trying to persuade them that they should reduce government spending.
Gather evidence from a variety of sources	What evidence supports your claim and what evidence is less compelling, making sure it is shown it is proper context and attributed.
What might be the shortcomings of your approach?	Is there enough data, is the evidence mixed, are there gaps in your knowledge.
Provide the logical flow	Help people understand how you went from your evidence to your conclusion. What gaps are there in your logical flow.
Alternative conclusions	What other conclusions could be arrived at from the evidence. Why have you discounted them.

The approach of nuance, complexity and multiple conclusions helps people understand that intellectual rigour has been applied to the ideas and it is not a post-rationalisation.

So what?

1. “Narratives” as invisible assumptions: Unspoken frameworks of beliefs that lead us to interpret the world in certain ways.

2. A narrative isn’t just “what happened,” but how and why events connect to form a coherent story. It reflects the narrator as much as it reflects the events.

3. We crave narratives: Faced with randomness or complexity, we instinctively construct narratives that satisfy our need for clarity and reinforce our existing beliefs.

4. The problem with narratives: By forcing neat story-arcs, we ignore randomness, luck, and complexity—leading to hindsight bias, overconfidence, and misplaced credit.

5. Spotting “dodgy” narratives: Always ask—Who’s telling this and why? What evidence exists? Are there logical gaps or emotive language? What alternative explanations or sources say?

6. Building honest narratives: Be clear about your audience and purpose; gather diverse, well-attributed evidence; acknowledge uncertainties; map out your logical flow; and consider—and explain—alternative conclusions.

Next week I will be discussing "Bringing data alive". Until then, please sign up to receive the blog directly to your email at Blog | Deciders.