Logical Fallacy

Categories: Financial Theory

Things that make you go “huh." Or, in some cases, things that make you do an outright Captain Pickard face palm.

Logical fallacies are faulty arguments presented as legitimate ones. They often involve making connections between two or more unrelated things. For instance, when ice cream sales increase, so do shark attacks. So, if we ban ice cream, shark attacks will stop.

A person can show fancy statistics and correlations to defend this position. But ice cream and shark attacks have nothing to do with each other, unless sharks suddenly want partially digested ice cream, in which case beachgoers have a huge problem.

Looking at the statement with a critical eye helps you realize that ice cream sales increase when it gets warm out…i.e. summer…and people go to the beach far more often in the summer. How many winter shark attacks have you heard of? Not nearly as many as in the summer. In this argument, the missing variable would be the season. The more people that visit beaches, the more likely someone, somewhere, is going to be attacked by a shark. And possibly have a movie made about him/her.

Logical fallacies tend to have two main causes. One, they can be the result of fancy psychology terms like cognitive dissonance or confirmation bias, where the ego is getting in the way of reason. Or two, they can be from willful acts of manipulation…using more subtle fallacies than the shark example, as most people would realize off the bat that something is wrong with that connection.

Either way, false correlations and context of events tend to be major culprits in supporting this faulty logic. In other words, logical fallacies are given life by linking items or events that may or may not have anything to do with each other or leaving out vital parts of the story.

A point to remember: correlation never equals causality.

Second point to remember: always be aware of context.

Find other enlightening terms in Shmoop Finance Genius Bar(f)