Friday, June 24, 2011

Media Spin

When you are presented a story, it's quite likely you are not given the whole picture. The story teller usually has a motive; he wants to keep you interested. As such, he will filter from the story any factors that are likely to mitigate your shock and awe at what he has to tell you. Not only is the mainstream media not immune from this process, they may be its purveyors-in-chief. As an example, consider a recent story from the Globe discussing BP's annual Review of World Energy.

The headline of the story reads "BP report raises doubts about global oil supply" justified by the fact that the "global oil industry found the equivalent of only a fifth of the oil it used last year". If it were true that the oil industry only replenished one fifth of what it drew down, that would be rather alarming.

But according to the BP report, global oil reserves actually rose in 2010! Proven reserves increased by 6 billion barrels despite 2010 global consumption of about 32 billion barrels. Therefore, in actuality, the global oil industry found the equivalent of 120% of what it used last year, giving the world a reserve to production ratio of 46.2 years.

Of course, all of these numbers are based on the report. I make no attempt to prove or disprove the findings of the report; I simply take issue with the alarmist media claims.

In this case, the article probably crossed the line between fiction and reality. But the media can shock and awe just as easily even by remaining within the boundaries of truth. One of their favourite techniques is described in Thomas Gilovich's book How We Know What Isn't So.

Gilovich describes how confidence intervals are exploited by the media. For example, if the infection rate for a disease is estimated between 0.05% and 5%, the media will jump on the most extreme level with a authoritative headline such as "Scientist: Infection Rates as High as 5%" and an article meant to alarm.

There is media spin in everything you read, which will make you believe things that aren't true. Be skeptical. Look for what you're not being told. Often, you can also combat the spin by going straight to the source of the research on which the article was based. (For example, the BP Review of World Energy is available here.)

Disclosure: No position in oil stocks or derivatives


Ankit Gupta said...

Something similar happened a few months ago when reporters came out and said that 10 companies like GE pay next to nothing in taxes, but rather got huge refunds despite all of the profits they made. They made these companies seem evil. They failed to exclude a number of facts:

1) A refund may be because of previous losses, and you can claim a few years of taxes paid

2) They played by all of the rules that everyone else was put under

It would be dumb for companies to not maximize tax savings, especially if they have losses that they can use, yet the media will make these actions look horrid.

Zachary said...

Did they actually find a lot of oil or did the rising price of oil over the last year make marginal deposits the companies already had be classified as reserves? For me this is a key question. I highly doubt they truly found so much strictly speaking.

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