The Narrative Fallacy: How the Stories We Tell Shape Our Reality
Building on last week’s exploration of the sunk cost fallacy, this week we turn to a closely related concept—the narrative fallacy. Understanding this concept can help us uncover how unconscious stories shape our decisions and beliefs.
What is Narrative Fallacy?
Similar to the sunk cost fallacy, the narrative fallacy stems from the stories we construct in our minds. We create these narratives by combining the information we receive with our belief systems and the experiences we've accumulated throughout our lives. These narratives shape how we interpret reality in the present moment, forming what we perceive as our 'current truth.'
We often attempt to predict our future based on these narratives, believing they provide a reliable framework for understanding what’s to come. While these narratives provide a sense of structure, they can also lead to oversimplifications or distortions of reality and the truth.
Narrative Fallacy in the Investment World
In the world of investing (money), this narrative fallacy is commonly observed. For example, investors often rely on historical performance to predict current market trends and forecast future movements. The reality is no one is able to precisely predict the market movement and behaviors. These predictions are built on a general direction theory (GDT) (more on this concept later).
Investors often fall into the narrative fallacy by interpreting past market trends as indicators of future performance. While historical data provides context (GDT), markets are influenced by countless unpredictable factors, making precise forecasts nearly impossible. This reliance on general assumptions can lead to overconfidence, ultimately blindsiding investors when markets behave unpredictably. Take for example the COVID-19, the unexpected event caused turmoil in the investment world leading to markets capitulating on the fallacy of world ending.
Narrative Fallacy Exists on Worldwide and Personal Scale
Narrative fallacies manifest on both global and individual scales, influencing how we interpret and respond to events. Before the COVID-19 pandemic, humanity largely operated under a narrative of dominance over nature—an illusion rooted in the belief that we were immune to widespread global disruptions. The emergence of a highly contagious virus shattered this illusion, exposing our vulnerabilities and challenging deeply held assumptions.
On a personal level, narrative fallacies appear in everyday scenarios. For instance, imagine you plan to leave for work at 7 a.m. to reach an 8 a.m. meeting, confidently assuming everything will go as usual. However, an accident during your commute disrupts this assumed normalcy (GDT), creating an unexpected scenario where you miss your meeting. The narrative of always being on time is suddenly invalidated by this unforeseen event.
We become aware of narrative fallacies when the unexpected disrupts what we’ve come to expect. Yet, in the moment—such as when you’re running late to work—your attention narrows, consumed by the urgency of reaching the meeting. In that moment our consciousness is stuck on making the meeting in time. You glance at the clock repeatedly; despite unconsciously knowing it won’t change the situation. The level of truth, in that moment is like missing the meeting feels as catastrophic as the sky falling. This reaction mirrors the fable of the chicken who cries that the sky is falling—a tale that highlights how fear and urgency can cloud our judgment, making us act as though minor disruptions signify catastrophe.
General Direction Theory
As we learn the alphabet, we inherently observe a sequence: A is followed by B, and B is followed by C. This creates a framework in our minds—a general direction theory (GDT)—where order becomes assumed rather than questioned. While the sequence of the alphabet seems natural, the assumption that A is greater than B, and B greater than C, is a construct we've unconsciously accepted.
Could General Direction Theory (GDT) itself be a narrative fallacy? These frameworks are often created to form systems from the chaos that exists around us. This highlights how rigid frameworks can shape our thinking, even when the order holds no real significance. This example highlights how frameworks we adopt unconsciously can restrict our thinking, making it harder to adapt when disruptions occur.
Our reliance on linear narratives (GDT) is evident in many aspects of life. Consider career growth: we often envision it as a step-by-step progression—promotion after promotion. We like narratives that are sequential as it brings comfort to our expected narrative. The expected narrative makes us feel that we are in control of the narrative. Yet, detours and unexpected challenges frequently lead to transformative opportunities, redefining success. Historically, think about your own journey, where unexpected events causing short-term pain have led to long term success. By recognizing that linearity is often an illusion, we can free ourselves from rigid systems, embracing the fluid nature of progress and growth.
Economics, too, is often framed through a linear lens: an expanding economy leads to a boom, a boom ends in contraction, and contraction is followed by a recession. This is the linear nature (GDT) of economics. Yet, recessions and market booms often surprise us because they deviate from linear expectations.
Experienced investors understand that non-linear market fluctuations will always occur. The key lies in surviving these disruptions and focusing on the broader linear trajectory (GDT) of investment growth over time. The narrative we create in the mind is subjective to our thoughts, feelings and limited to the specific time frame. History has shown recessions always occur; they will cause mayhem to the individuals and companies that do not expect them to occur, due to the subjective manner of thought. Markets will recover similar to COVID-19 with “extraordinary” performance. When we say extraordinary performance, after all recessions markets eventually recover to all-time highs. Extraordinary occurs in both directions. Extraordinary performance is just then a limitation to our current narrative.
Just like macro events, the micro events in everyday scenarios also have non-linear occurrences, such as that accident causing a delay and reaching to work on time. When something unexpected challenges our GDT framework, it disrupts our current understanding of truth, often causing a shock to the system. This tendency to rely on rigid frameworks—and the shock of their disruption—is a pattern we frequently encounter in everyday life.
Understanding How the Narrative Fallacy Develops
Hyperion, the tallest tree on Earth, stands at an astounding height of approximately 115 meters. Surprisingly, these towering trees have roots that extend only 2-3 meters into the ground. How, then, do they support such immense canopies? By spreading horizontally over vast distances—sometimes up to 30 meters wide—these roots provide the stability needed for growth.
This discovery reveals how questioning surface assumptions can uncover unexpected truths—just as the seemingly shallow roots of Hyperion spread wide beneath the soil to support its towering canopy. Like the roots of Hyperion, the unseen assumptions underpinning our narratives often stretch far and wide, hidden beneath the surface of our consciousness.
From a young age, we accept the knowledge conveyed by our surroundings, often without questioning its truth. As knowledge travels from our sensory organs, it forms a narrative (GDT) in the mind via thoughts and finally in our soul as feelings, we unwittingly create fallacies that shape our understanding of reality.
From these single pieces of information received every second, we start to build the reality, the reality of the surroundings and create systems in our mind in a linear nature, so we are able to store it and when new information is received to expand on the current narrative. The current narrative is our level of truth. Fallacies develop due to our inherent nature to continuous expectation of the linear systems over an extended period of time due to previous succession of events.
Escaping the Narrative Fallacy
In the night sky, we see the moon reflecting the sun's rays onto the earth. The earth feels what the moon reflects, and the moon reflects what the sun projects. Imagine the sun as our soul, projecting light, the moon as the mind, reflecting this light, and the earth as our sensory organs, receiving and feeling the reflection. Generally, this our we develop our narrative and the level of truth, the outside senses and mind direct the pattern of thoughts and narrative.
Just closing off our senses (earth) and mind (moon) and focusing on soul (sun), there exists no darkness or light, it was all just a formation of narrative—thoughts, feelings and beliefs. We liberate ourselves from ignorance, the constraints of past narratives, creating space for fresh perspectives.
This manner of thought forms a clean slate of paper as we approach every decision without holding onto our past perceptions and expectations. Decisions are made in current moment to deliver an unbiased action from our source of truth; our sun, our soul.
This introspection can empower us to question and redefine the narratives.
Mindvesting Summary
Our mind works in mysterious ways. We think we control our own narratives, but in reality, they emerge from the random, non-linear flow of information we receive and interpret. These perceptions build upon prior experiences, shaping the truth we believe in the present moment. The truth is w only control our mind. Even that we are not able to control, due to narratives formed by our beliefs and emotions. Emotions left alone without constant vigilance consciousness, allow the mind to stray just like the chicken crying that the sky is falling.
Understanding the fallacies within our mind—how unconscious patterns shape decisions and beliefs—can trigger moments of internal disagreement. Yet paradoxically, that very disagreement is just another narrative we’ve constructed! The disagreement is typically our false ego to ensure the narrative adds to requirements.
Evolution itself has been shaped by randomness—by unexpected discoveries, from harnessing fire to understanding light. Without these unpredictable breakthroughs, our entire evolutionary trajectory would be vastly different. These random events have allowed human progress to unfold in ways we could never have foreseen.
Whether in global disruptions, personal routines, or societal frameworks, narrative fallacies reveal how our constructed stories shape the way we interact with the world. Understanding that everything linear is non-linear can allow us to become detached from our own biased belief systems. By questioning and understanding these fallacies, detaching from our senses and mind, we can approach decision-making with greater clarity and adaptability, moving beyond the limits of assumed narratives towards the unbiased truth. GDT and randomness both occur, true growth is remaining steady in our soul and detaching ourself with situational consciousness.
Recognizing this tendency allows us to shift our perspective—seeing disruptions not as failures, but as opportunities to detach from rigid frameworks and embrace new possibilities. By adapting to linear and non-linear realities, we can transform uncertainty into a gateway for growth and deeper self-awareness.