Narrative Fallacy
The tendency to construct coherent stories that explain past events, giving false confidence about their predictability.
How it is identified
Test: a causal story is accepted because it is coherent, without testing whether the same story would have predicted the outcome in advance
Unit
qualitative
In depth
Humans understand the world through stories, and a good story feels like understanding even when it contains no predictive content — Taleb's term captures the specific danger of this in finance. Every market move receives an explanation by the evening, and the same event on a different day would have received a different one. The fallacy makes randomness look like causation, which supports overconfidence and hindsight bias. The test that exposes it is whether the story was written before the outcome or after; almost invariably it was after.
Worked example
The market falls 2% and the evening report attributes it to a global cue. The same cue on a day the market rose would have gone unmentioned, and both reports would have felt equally explanatory.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Narrative Fallacy” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.