The incredible flipping preference

What we truly prefer is sometimes not what we choose

There is a new coffee place in town. Monday last week temptation got the better of me and I decided to try it out. The Americano was rather pricey at £3.50, but it tasted so very nice, that I went back the next day.  The barista is an intriguing person, with an extraordinary memory. Having seen me only once before, she still immediately greeted me by my (admittedly unusual) name.  She also has a rather peculiar way of proving that her coffee, costly as it is, is the best value for money.

On that second day, she made me an offer. She would dilute her coffee by 2% and charge me 10p less, and let me compare that with the standard full strength coffee. If preferred the newer one, I would be guaranteed to always get that cheaper variant – just 2% diluted, but at 10p less. So I watched her do her magic, and then sipped alternatingly from the two cups in front of me. Much as I tried, I could not really spot any difference, so rational dude that I am, I went for the cheaper version.

“I thought you would,” the barista said. I smiled, and worked out that I’d just saved myself £25 on my annual coffee budget.

Keep on diluting

On Wednesday, she made me the same offer: reduce the strength by a further 2%, and another 10p discount, if I preferred this version over Tuesday’s. Once more, I couldn’t notice a difference between today’s and yesterday’s variants, so as before I decided to go for the cheaper coffee. “I thought you would,” she said again, with a twinkle in her eye. I was now going to save £50 a year on my daily coffee. Great!

Thursday, and Friday, the same story.

So the next Monday, one week after my first visit, I was wondering whether she’d be proposing to reduce the strength further, until I’d stick with my last preference. And indeed she asked, “You preferred Friday’s version over all the coffees you tried last week, right?” I nodded. I was now drinking coffee that unnoticeably little less strong, but I was paying 40p less per cup. That would save me more than £100 per year – the price of a very nice meal for two.

“Here it is again, and here’s a cup of my standard coffee to compare it with,” she said, “the one you had on your first visit here. So which do you prefer?” I took a sip of Friday’s variant – it was pretty much what I remembered from before the weekend. Then I tried the original brew again. My goodness, how different it tasted, so much richer and fuller! If I hadn’t seen her prepare both cups, I would have sworn she was playing a trick on me.

“So, what’ll it be? Which is the best value for money?” she asked. There was no way I could envisage myself drinking that weak Friday concoction ever again – and after all, the wonderful, exquisite full-strength brew was barely 40p more. “I’ll have your standard coffee, now, and forever more,” I said. “I thought you would,” she responded.

What just happened violates one of the cornerstones of conventional microeconomics: the principle of transitivity. Rational people should, if they prefer B over A, and C over B, prefer C over A and not the other way round. I had favoured Friday’s coffee over Thursday’s, Thursday’s over Wednesday’s and so on…

coffees

…but I had also preferred last Monday’s over Friday’s. And that is, well, not rational.

“Are you by any chance a behavioural economist?” I asked the barista. She just smiled at me and winked*.

Here is a possible explanation for my inconsistent preferences. The difference in quality, resulting from a 2% dilution, between coffees on two consecutive days is insignificant. This makes the other difference, the difference in price, stand out. It is of course rational to go for the cheaper coffee if it appears to have the same quality as the more expensive one. But when the accumulation of quality reductions becomes discernible in comparison with the original coffee, it outweighs the relatively modest saving in cost.

Flipping preferences

We’re not off the hook, though. Even without such a somewhat convoluted circular comparison chain, our preferences are far from straightforward and stable.

In 1992, Max Bazerman, George Loewenstein and Sally Blount carried out a set of studies on how justice and fairness are perceived. One of their findings was that “individuals’ preferences […] can reverse, depending on whether potential outcomes are evaluated sequentially or simultaneously.”

Well before this research took place, I had been saving up my pocket money for a portable radio. A local department store had a whole range of them on display, and on the way back from school I often popped in to gaze at the models on offer. One particular type had become the focus of my attention: the Satellit 210 was big expensive, but it was so impressive with three times as many wavebands as the other models, that this was the one I wanted! My dad challenged me, though – what on earth would I do with nine shortwave bands? In the end, I saw sense and I got myself a radio with just 4 wavebands, for less than half the price and weighing less than a fifth of the Satellit. (And to be honest, I never once listened to the single shortwave band on this one.)

radios

Tough choices (images: Wikimedia, kbmuseum)

As soon as I stopped comparing radios side by side, and simply considered the options separately on their merits, it was clear that the shortwave bands were a complete red herring, and that an expensive beast of nearly six kilos was not what I needed. My preferences were reversed.

In a recent paper, Nudge co-author Cass Sunstein, the man who writes faster than his shadow (and certainly faster than most of us can read), delves deeper into this phenomenon. Using examples from elsewhere in the literature, he explores how and why our preference across two options might flip, depending on how we consider them. This is not just intriguing, it can also be welfare-reducing. If we have a true, underlying preference, but the context can lead us to believe the opposite, we risk ending up with the worst option.

Evaluating something means judging its features. That is easier to do if we have another option to liken it with: the characteristics in which they differ will then be prominent in our analysis. The problem is that these salient attributes may not be the ones that matter most to us (like the number of wavebands).

In the absence of an alternative, we have less information about the relative position of what is on offer. Even numerical data are often abstract without a reference point. Is a laptop battery life of 6 hours impressive or just mediocre? Is 10,000 entries in a dictionary a lot or a little? With no benchmark to compare it with, we are open to misinterpretation (“10,000 sounds like a lot”).

Cunning salespeople can take advantage of the weaknesses of both situations. If they want you to buy an item with positive features that are generally easy to evaluate on their own, and less positive ones that are harder to assess in isolation, they are better off showing it separately.  In the opposite case, they would enable the comparison with another option, and highlight the attributes where the choice they want you to make is superior – irrespective of the degree to which this matters to you.

But as my radio experience illustrates, we are perfectly capable of misleading ourselves, without the help of a devious shop assistant. The trouble is that neither joint nor separate evaluation is inherently better for establishing our true preference. When we need to decide between options, and choose which will serve us best, we ought to look at the features that matter most. But in practice, we are driven to focus on what stands out, and what is easiest to evaluate. And that tendency can trip us up in both cases.Being aware of the problem can help, though. If you come to a conclusion using one type of evaluation, try the other. If it remains unchanged, great! If it flips, you know some more thought is needed. Ask yourself (or get someone else to ask you!) what truly matters, and then make your choice.

That’s the way to outsmart yourself (and any crafty salespeople).

 

*This story is based on an example in Nick Chater’s online course The Mind is Flat.

 

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Posted in Behavioural economics, Cognitive biases and fallacies, Psychology | Tagged | Leave a comment

Surreal choices

When decisions look bizarre, it may be because they involve unfeasible trade-offs

Belgium is often associated with surrealism, not just thanks to renowned surrealist painter René Magritte was Belgian, but also because of its somewhat idiosyncratic politics. With six governments, several of which have a say in, for example, the ratification of EU free trade agreements, and of course its record of the longest period without an elected government (589 days), it has more than a decent claim to being a surrealist country.

But recently it has received a significant challenge from the UK. Earlier this week, rebels in the Tory party voted against the government, in order to support that very government. So what is going on? Let’s rewind a few weeks.

On Friday 6 July, prime minister Theresa May had pulled a white rabbit out of her hat. In a 12-hour long meeting at Chequers, her official country residence, she had succeeded in getting her unruly, divided cabinet unanimously to sign up to a comprehensive Brexit plan. Yet the triumph was short- lived. Less than three days later, both the Brexit minister, David Davis, and foreign secretary Boris Johnson had resigned, and she was forced to hurriedly reshuffle her government.

Opinions on the Chequers white paper in parliament were of course divided, and both sides had submitted amendments prior to the debate and vote. The pro-Europe side wanted to preserve what were, in their eyes, elements of the present relationship between the UK and the EU that are crucial for the country’s economic prosperity (like a form of customs union enabling frictionless automotive supply chains). Those favouring a hard Brexit wanted to eliminate all influence Europe might still have over the UK (such as the role of the European Court of Justice on VAT arrangements).

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Nothing surreal so far (image: UK Parliament CC BY)

The vote on the Chequers plan was widely considered as a test for the government’s stability, and its ability to deliver the divorce by March of 2019. Under pressure, it had decided to accept all the amendments made by the Brexiteers, but none of the pro-Europe ones. Despite doom scenarios of what might happen if the government were defeated (a vote of no-confidence, followed by new elections which would be won by Labour and lead to PM Jeremy Corbyn!), fourteen Tory MPs voted against the government. They did this because they believe that the Chequers plan, with the amendments, didn’t stand a chance as a negotiation opener. Thanks to a handful of pro-Brexit Labour MPs who defied their own leadership’s voting instructions, and the remarkable absence of two key Liberal Democrat MPs, however, the government narrowly won (by 3 votes).

The scene of members of the governing majority deciding to vote against the government in order to safeguard the carefully crafted original government white paper has indeed something surreal about it. Can we make some sense of it?

For that, we must look at the choices some of the key people in this tragicomedy were (and are) facing.

Tough, tougher, toughest decision-making

Many decisions we make day in, day out are relatively simple. Shall we sacrifice one thing (often money or time) in order to gain another thing (typically a good or a service)? Whether we do or don’t, we’ll have less of one, but more of the other, and so the decision boils down to: is it worth it? That may not be easy, but it is not complex. Even if (or in fact precisely because) we can spend money or time in different ways, we can easily make comparisons, and so establish whether a particular exchange delivers the best value.

But sometimes intangible values play a part, and then things do become more complex. Deciding whether a new pair of trainers or a fancy meal out provides most value is one thing, but choosing between buying a new smartphone, and keeping it for another year while donating the money to a charity close to your heart, that is a different affair.

Yet the politicians on the choppy waters of the Brexit sea are facing even more complicated choices. They have to weigh up multiple intangibles against each other, like political ideology, the economy, and personal integrity. For many, the – for them at least – very tangible matter of the risk to their job as a minister or an MP adds a further dilemma.

Take the challenge for the cabinet members at the Chequers jamboree. Irrespective of which side they’re on, one element was loyalty to the PM (and keeping their ministerial job). But what about their ideology? Would the chance to get the Brexit they wanted (the softest possible for one side, the hardest one for the other) be enhanced by supporting the plan, or by rejecting it? Would their voters back home respond more positively if they stood up for their conviction, but undermined the PM – or vice versa? Which choice would best serve any personal ambitions (perhaps to become party leader and PM oneself)? Loyalty appeared to be the decisive factor at first, but upon reflection other considerations turned out to be more weighty for two key cabinet members.

Mrs May herself doesn’t have an easy job either. She has – perhaps unwisely – drawn, and later reconfirmed, several red lines well before the complexity of Brexit was fully clear. But as the daughter of a priest, she is a very conscientious person, for whom keeping promises is very important. However, Brexit bulges with trade-offs between sovereignty over laws, money and borders on the one hand, and frictionless trade (without tariffs or paperwork), and a myriad other complications for a range of industry sectors from air travel to nuclear medicine, on the other. More sovereignty may mean damage to trade, and hence to potentially hundreds of thousands of jobs.

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The spectre of PM Corbyn (source: YouGov)

On top of that, she is leading a deeply divided party that wouldn’t take much to split, and she has a very slim majority in the commons. One wrong step could lead not only to her losing her position as a party leader and PM, but also to an early election, in which a recent poll suggests Labour might gain many more seats than the Tories (though probably not an absolute majority). Her job, her reputation, the Conservative government and the survival of the Tory party are at stake.

The political trolley problem

Potentially, the choice she faces is very stark indeed. Should she preserve a smooth economic relationship with the EU (representing roughly half of the UK’s international trade) and compromise heavily on her red lines (and thus risk the implosion of her party)? Or should she follow the ideological path to sovereignty, which might just keep the party together (a majority of the grassroots membership is in favour of a hard Brexit), but risk significant economic damage to the country? Screw the party, or screw the country? It’s almost like a politician’s version of the trolley problem.

Within that context it is not entirely surprising to see Tory rebels voting with the opposition in order to support the government’s original proposals, surreal as that may look. But the actual roots of today’s surreal scenes lie not in the decisions that are being taken today, but in those that preceded it, including:

  • triggering Article 50 of the Lisbon Treaty and thus unconditionally fix the day the UK will drop out of the EU without having a clear plan
  • pursuing (and promising) mutually incompatible goals, as if there are no trade-offs to be made (also known as having your cake and eating it)
  • holding a referendum without any plan of what happens in case it doesn’t go the way you want it to
  • holding a referendum in which one of the two options is ill-defined, open to widely different interpretations, and with no clarity on what trade-offs it would entail

As a Belgian (whose future status as an inhabitant of the UK is becoming more uncertain by the day) it pains me to say that the UK is well and truly outshining my native country in the surrealism stakes.

Ceci n’est pas un gouvernement.

Posted in Behavioural economics, Economics, politics | Tagged , , | Leave a comment

What’s new(s)?

(featured image credit: Martin Krolikowski CC BY)

The priorities of the items in the news hint at an important factor in our economic decision-making

 

In the past week, three themes have been dominating the news headlines in the UK: the football world cup, Brexit and the fate of the 12 boys and their football coach trapped in a cave in Thailand. At first this has little to do with economics.

Well, arguably, Brexit has a lot to do with economics, but I am alluding to the decision-making what to cover and not to cover, how much time or column inches to devote to each item, and what order or page to present them in. And that is very much economics: it is about allocating precious, scarce resource.

Editors have a tough task. With very little time to prepare – especially those responsible for newspapers’ early editions or morning broadcast news – they need to decide what should be most prominent for their readers, listeners and viewers.

Audience figures matter a lot, so they must shape the front page or the news headlines according to the tastes of their target public. If their decisions don’t chime with their audience and it turns away, they will soon be replaced by someone better at the job. So it is reasonable to assume that editors are at least quite competent at anticipating what is important to us here at the other end.

What matters?

So far so good. But what makes something important to us? You might imagine that the news will reflect events and developments that may affect our wealth and our health – aren’t these top priorities?

Yet strangely, it’s hard to see how these three themes fit that requirement. The football world cup results may have some significance for the vendors of merchandising, but the material impact on the vast majority of the population is very small.

Brexit, in contrast, will most definitely materially affect the wealth and prosperity of many Britons. But that was not what hit the headlines. Even though leaving the EU will hit most people in the wallet, there is little interest in the technical details. No, it was the drama (some might say the pantomime) around the movements in the British government that caught the attention. On 6 July Chequers, the Prime Minister’s country residence, was the stage for the long-anticipated crunch meeting where Theresa May would seek to establish consensus around a comprehensive Brexit plan. That evening, it seemed the entire cabinet had unanimously backed the plan. But barely 48 hours later David Davis, the Secretary of State for Exiting the EU, had resigned. And by Monday afternoon, Foreign Secretary Boris Johnson had also left. Arguably, the resulting changes to the cabinet too may indirectly have material consequences for the electorate (and the expatriates living in the UK but not entitled to vote), but by and large, that was not the focus of the reporting.

Tham Luang

Emotional rescue (photo: Wikimedia commons)

Perhaps the strongest indicator of what drives the choice of news items lies in the story about the entrapment of the 12 teenage footballers and their coach in the Great Cave of the Sleeping Lady, and their subsequent rescue. Here, any connection with anyone’s present or future wealth is extremely remote – yet it is a story that has enjoyed, even more than the other two, exceptional global popularity. The idea itself of being trapped underground in pitch darkness for over a week, with water rising, with barely any food or drink, and with no idea whether you will ever be found – it’s pure stuff of nightmares. And this was happening, not to rugged, experienced cavers, but to a bunch of boys. It’s not hard to see how it was the emotional connection that captivated millions of people worldwide.

It’s just a small step from there to the emotions involved in the football world cup. Both my native country and the country where I have been spending the second half of my life reached the semi-finals. Am I a great football fan? Not at all. Is football important to me? Not really. Well, I say that, but it does seem to have been important enough to me to join countless other people who otherwise rarely watch football, and spend about two hours of my life watching a game several times in recent days. Sure, I was selective in my interest – because only two teams really engage my emotions – just like so many other people who root for ‘their’ team. No surprise then that news editors have been allocating a lot of their scarce resource to the adventures of the national team.

And emotions abounded just as much in and around the recent episode of the Brexit soap opera. The cliff-hanger of the Chequers meeting, the delayed resignations, the showmanship of Boris Johnson who invited the press to witness his signing of his is resignation letter, the scheming of outraged Brexiteers weighing up their chances to topple Theresa May, and so on – all the way to Donald Trump’s sizeable contribution just this morning. You didn’t even need to choose a side to be engrossed by the spectacle –it had something of a Shakespearian tragedy. But of course for many people in polarized Britain this was either an opportunity to experience a combination of smugness and schadenfreude, or of affront and despair – adding to the emotional gravity.

BoJo

An emotional farewell letter, for sure (photo via Twitter)

Emotion matters

News editors give more weight to stories that chime with our emotions. And it is apparent that those are altogether not stories about what makes us materially better off or worse off.

Those preferences for news – so aptly identified by editors – carry over in our wider (economic) decision-making. We most certainly incorporate emotions in the choices we make.

That goes squarely against a certain, narrow interpretation of us people as homo economicus, the rational, utility-maximizing, self-interested character, in which utility only reflects material costs and benefits. Yet it also challenges a widespread perspective in behavioural economics, in which we are all profoundly irrational, riven with biases and prone to fall for fallacies.

But is it truly irrational to prefer a job where you earn $50,000 and your colleagues $25,000 over one where you earn $100,000 and your colleagues $200,000? (That is what about half the participants in a 1997 study by Sara Solnick and David Hemenway chose.) Or is it the blatant unfairness of the second job, compared with the pleasant feeling of superiority of the first that is, apparently, valued at $50,000?

Is it irrational for people to strongly prefer a ‘platinum’ credit card over an ordinary one offering identical benefits? (This is what Leonardo Bursztyn, Bruno Ferman, Stefano Fiorin, Martin Kanz and Gautam Rao found in a 2017 field experiment in Indonesia.) Or does the higher perceived status of the platinum card confer real emotional utility?

When you realize how deeply emotional considerations are involved in the decisions we make, choices that may appear surprising or indeed irrational at first become perfectly understandable. And when you realize that, for different people, different emotions may be at play, that is even more the case. But it would be a mistake to conclude from this that we are not rational, but emotional beings. On the contrary: it is precisely our own, individual emotions that make us rational – at least some of the time.

Posted in Behavioural economics, Cognitive biases and fallacies, Emotions, Psychology | Tagged | Leave a comment

The fallacy that became itself a fallacy

(featured image credit LearningLark CC BY)

Even specialists can fall prey to cognitive errors

I have been tossing a fair coin, and it has come up heads six times in a row. The chance of either heads or tails is 1 in 2, but for this to happen six consecutive times is 1 in 2 to the power 6, or 1 in 64. What is the probability that the next toss will turn up a seventh consecutive head?

The correct answer is of course 1 in 2. Coins don’t have a memory. What happened before cannot influence the current result. We all know that – yet our intuition sometimes leads us to believe differently.

On 18 August 1913, the ball at one of the roulette tables in the Monte Carlo casino had been ending up in a black slot for nearly 20 times in a row. Several gamblers started taking an interest and started putting money on red: after such a long streak of black, red was surely due to come up. And still the ball kept falling on black. People put more and more money on red at each successive turn of the wheel – and kept on losing it, as black kept on coming up. Let’s face it, where would you put your money if you happened to be there, having seen black come up 25 times in a row? Eventually, after an unbroken series of 26 blacks (likelihood: 1 in more than 136 million) the ball finally landed on red.

More recently, it was number 53 in the Italian lotto that had failed to come up for nearly two years and which, apparently, not only drove people bankrupt, but some to their death. The phenomenon has been described long before, though, for example by the early 19th century mathematician Pierre-Simon de Laplace, as Joshua Miller and Andrew Gelman discuss in a fascinating paper.

Casino Roulette - 3d render

Red at last! (photo: SalFalko CC BY)

It is gamblers who give this cognitive illusion – that if something happens less frequently than normal for a period, it will occur more frequently in the future (or vice versa) – its name: the gambler’s fallacy.

Let’s not assume that only compulsive gamblers fall for it, however. If your neighbour is pregnant again, having had five girls, what is the chance of the sixth child being a boy? Did you not, for a moment, feel that it ought to be more than 1 in 2? Given the dry and sunny weather we’ve been experiencing in the UK for weeks now, do you think a dry second half of August is more or less likely than normal?

We treat streaks as if they predict the next outcome. Our human brain is ill-equipped to handle the concept of randomness: we easily see patterns where there are none. The figure below[1] shows the outcome of three sequences of 50 roulette wheel spins (ignoring any zeroes). We know that red and black are equally likely, and we intuitively interpret this as “50% of the outcomes should be black”.  When we see long streaks of one colour, we think that is extraordinary. The universe is out of balance, and a reversal is overdue. Our intuition tells us that after the five blacks in A, a red outcome must be more likely to redress the imbalance. A sequence without long streaks (like C) looks more ‘normal’, but in reality, A and B are the result of genuine spins, while C has been manipulated to generate a reversal 3 out of every 4 times.

roulettespin

The hot hand

There is another phenomenon that is often compared with the gambler’s fallacy. Known as the hot hand fallacy, it was first described in 1985 by Thomas Gilovich, Amos Tversky and Robert Vallone. The ‘hot hand’ refers to a presumed temporary state of a basketball player in which they are more likely to perform better than average, i.e. they will be producing streaks of successful shots. Fans, coaches and players alike widely believe that players are more likely to make a shot after having made the last two or three shots, than after having missed them.

In several studies the researchers failed to find any significant correlation between shots (except for one player). They concluded that the belief in the hot hand in basketball is a cognitive illusion, resulting from the “expectation that random sequences should be far more balanced than they are, and the erroneous perception of a positive correlation between successive shots.” The chance of scoring does not depend on what went on before.

For about 30 years, this conclusion remained largely unquestioned. The hot hand fallacy stood as one of the more robust cognitive errors, even as new research using larger datasets found patterns actually consistent with the hot hand. Issues of measurement and control prevented these studies from determining the magnitude of the hot hand, and so they did not topple the prevailing wisdom.

But in 2016 Joshua Miller and Adam Sanjurjo discovered a fundamental flaw in the reasoning by Gilovich et al. One of their original studies positioned players on various spots on an arc, at a distance from which their shooting percentage was approximately 50%. Each player had to take 100 shots and they found no marked difference in the goal percentages after 1, 2 or 3 hits, or after 1, 2 or 3 misses. Intuitively, this is exactly what you would expect to find if you were to replace the outcomes of the players’ shots by a sequence of 100 coin flips. As successive flips are independent, we expect the percentage of heads that follow a streak of heads to be identical to the percentage of tails that follow a streak of heads.

This is incorrect. Bafflingly so, but yes, it truly is incorrect. Meet Jack, a hypothetical character from Miller and Sanjurjo’s paper. Jack tosses a coin 100 times. Every time it produces heads, next time he flips he writes down the result. He – like Gilovich and co, and most of us – expects to see approximately 50% of heads. But it is less.

To illustrate why, let’s look at what happens when he tosses the coin just three times. There are eight possible outcomes:

jackstable

In the first two cases, Jack has nothing to write down. The next four situations turn up one relevant head, so Jack writes down the outcome of the next flip. The final two feature relevant heads twice, so each time Jack writes down two results. The proportion of heads for each flip is shown in the third column. In three of the six cases (3, 5 and 6) heads is followed by tails, so the proportion is 0. In case 4, heads follows heads, so here the proportion is 1 (or 100%.) In the remaining two cases, heads occurs twice. In case 7, one heads is followed by heads, the other by tails so the proportion is 0.5; and finally, in case 8, heads is followed by heads two times out of two, so another 1.

Now imagine I have flipped the coin 3 times and I have calculated the proportion of heads following heads. What would be your best guess for the proportion? A simple calculation shows that the best guess (the expected value) is 2.5/6 (or 5/12), which corresponds with 41.67% — considerably less than the 50% we were all expecting.

Miller and Sanjurjo provide mathematical proof that this remains true for larger, finite sequences and for longer streaks: the likelihood that heads turns up after a preceding streak of heads is always less than one-half. The implication of this is clear: a basketball player shooting just as well after a streak of hits as after a streak of misses, is shooting about 8 percentage points better than you would expect by chance. This is no small beer. Typically the field goal percentage (the ratio of successful shoots over attempts) of a top NBA player is about 10% higher than that of a median player. In other words, a median player with a hot hand gets a boost that is nearly equivalent to her moving to top level!

A surprising fallacy

So if the hot hand actually exists, the hot hand fallacy is itself a fallacy. How could it persist for so long?

While I was drafting this article, Dan Kahan, a law professor at Yale University, published a post that reflects pretty much my own thinking. The authors of the original study, and many of those who subsequently took it at face value, assumed that the belief in the hot hand is similar to that which is central to the gambler’s fallacy: the erroneous belief that independent successive events are, in fact, not independent. It has the look and feel of a typical System 1 error – the cognitive system popularized by Daniel Kahneman in Thinking, Fast and Slow: fast but impulsive, and therefore relatively easy to fool.

What better way to show the error in the belief in a hot hand, than the conscious, deliberate, systematic, effortful application of System 2 thinking in the 1985 paper? However, hidden in it was the erroneous intuition that Miller and Sanjurjo brought to light. Cognitive errors are generally attributed to an overreliance on System 1. But here we have a situation where the researchers had not only mistakenly assumed such a System 1 bias in believers in the hot hand, but also neglected to verify their own assumptions.

little hot hand

Little hands, but hot hands! (photo: Patrick CC BY)

There is a lesson here for everyone involved in scientific research: doubt your assumptions and your intuitions, even if – or indeed especially if – they look totally self-evident. Verify the hell out of them (and enlist the help of your most critically-minded colleagues).

But there is also a lesson for all of us. Andrew Gelman, a statistician who delights in exposing sloppy statistics in the social sciences, describes the response of Tom Gilovich to the criticism as doubling down on the original conclusions.

It is not in our interest to cling on to beliefs that are crumbling under new evidence, let alone to double down on them. There is an array of cognitive explanations why we tend to do so, from confirmation bias to sunk cost fallacy – but it doesn’t have to be that way. If we don’t identify with our beliefs – if, as Nick Maggiuli says, we treat them like clothes we can change, rather than tattoos we are stuck with forever (or until painful removal), we will not find it so hard to replace our old, obsolete beliefs with better ones.

I firmly believe this – at least until I am confronted with credible evidence of the contrary.

 

[1] Thanks to Josh Miller for kindly helping me, in an email exchange, with visualizing the human fallibility in evaluating randomness

Posted in Behavioural economics, Cognitive biases and fallacies, Psychology | Tagged , , | 1 Comment

How to stop acting as if more is better

(featured image credit: drinks machine CC BY)

Quality matters, we often say, but when we’re not paying attention, quantity tends to sneak in and get the upper hand

Imagine that £2 buys you one of two options: either a nice big scoop of your favourite flavour ice cream, or just a spoonful of gelato made by Alessandro Crispini, the winner of ‘best gelato in the world’ award in 2017.  Would it be a hard choice? What if you could get more of Mr Crispini’s frozen delight – half a scoop perhaps?

This hypothetical situation (unless you are in Spoleto, where the Crispini gelateria is located) exemplifies a fundamental dilemma we often face: how do we trade off quantity with quality? Maybe you don’t particularly like ice cream. A holiday perhaps? A week on a paradise island, or a whole month at the Belgian seaside? A weekend break in Prague or New York, or a fortnight in a caravan in Yorkshire?

Quantity is easy

Quantities are of course easier to evaluate than quality. When we cannot assess the quality of something (or when we don’t know how to do it), we often – understandably and reasonably – fall back to evaluating what we can: some quantitative measure.

Behavioural economist Dan Ariely tells a story of a locksmith to illustrate how that affects our perception of value (if we are not careful). As an apprentice, when he was called to help out people who had locked themselves out, he used to take a long time to open the lock (often breaking it in the process), as he often didn’t quite know what he was doing. Yet his customers never complained, not even if they were charged for a replacement (and they often gave him a fat tip). Many years of experience later, it took him at most a minute to pick a lock, rarely ever breaking it… yet customers often complained about the size of his bill. Our perception, Ariely says, is often not about what we’re getting (the output, the quality), but about how much effort or time someone is putting in on our behalf (the quantity).

megajug

56 lumps of sugar in support of a diabetes charity – image via reddit

This tendency to be guided by the magnitude of the input we are getting can be to our detriment, though. When McDonald’s started out in 1955, there was one size of Coke on the menu: 7 ounces (just over 200ml). By 1994, the largest (of several sizes) was six times larger. Not that this was the end, though. KFC’s MegaJug (64 oz. or nearly 2 litres) was an 800-kcal monster containing the equivalent of 56 spoonsful of sugar.

These excesses have disappeared, but that doesn’t mean we are safe from quantity bias. In a UK McDonald’s you can buy an “extra value” meal, including medium drink and fries for about £4.50-£5 (€5-5.50, $5.80-6.50) depending on the burger. But for just 40p (not even 10% extra) you can upgrade it from medium to large. Very tempting indeed. (Even if your inner economist looks at just the cost it is good value: you get about 1/3 more fries and ¼ more soda which, if you bought them individually, would cost you 20p more than the upgrade).

But are we actually better off with more food and drink?

If we are to believe Yann Cornil, an economist and assistant professor of Marketing at the University of British Columbia, and Pierre Chandon, a professor of Marketing at INSEAD, the answer is no. They claim there is a win-win-win to be had if only we were to eat differently. By focusing on quality (the sensory enjoyment we get from eating) rather than on the quantity we ingest, we will not only derive more pleasure at mealtimes, but we will also keep a lid on the calories. And the third win? If it’s all so gratifying we should be prepared to pay more for the experience, so suppliers of food – from restaurants to pudding makers – will see bigger profits.

Epicurus to the rescue

They put this to the test at the renowned Bocuse Culinary Institute. 109 people came to the school’s cafeteria for an ‘all you can eat’ 3-course lunch, costing €15 (£13, $17). The participants were divided in three groups: a control group with a regular menu simply listing the dishes available, a second group which got a menu showing the nutritional information (calories, fat etc) for each dish, and a third group, whose menu “described very beautifully all the sensory aspects of eating the food, the tastes, the aromas, the textures, etc.”

bocuse menu

Less food, more pleasure! (image via YouTube)

The first group consumed, on average, about 1,000 kcal (half the recommended daily consumption for women, 40% of that for men). The second group were apparently scared off by the nutritional data on their menu, as they only ate 681 kcal worth. The third group consumed just over 800 kcal – still 19% less than the control group, and a more sustainable amount. Asked about the perceived value of the meal, the diners in the control group thought they’d got €17 worth of food (a 13% surplus compared to the price paid), while those with the detailed nutrition information menu didn’t think the meal was worth more than the €15 they paid. But the guests in the third group, who had been primed for sensory delight, felt they had received a meal worth €20 – a surplus of 33% over the price paid. Cornil and Chandon’s intervention – which they call Epicurean nudging, after the ancient Greek philosopher who believed pleasure was the greatest good – seems to have worked as expected.

It is hardly surprising that it is two French academics championing the quality of food over the quantity. But their observations and conclusions may find application well beyond gastronomy.

As worries grow about the undeniable scarcity of the resources on our little planet (from water to energy), and about the amount of waste we produce (from plastics to carbon emissions), maybe epicurean nudging can be part of a bigger solution. If we are quite happy to eat less, enjoy it more, pay extra for the overall experience, and we can easily be nudged to do so, win-win-wins of this type might be feasible elsewhere too.

United nudgers of the world – this looks like a challenge!

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No uncertain terms

We are all suckers for certainty

Earlier this month, it was announced that Paul Dacre, the editor of the Daily Mail since 1992, would step down in November of 2018. The Mail is the second best selling newspaper in the UK (after the Sun), with an average of around 1.4 million copies per day in 2017.

It is also, to put it diplomatically, rarely far from controversy, and near-universally despised by people even vaguely on the liberal left for its firmly conservative editorial stance. Recently, in particular its position on immigration is regularly being denounced. Following calls from Stop Funding Hate, a social media campaign launched In 2016 in the wake of the Brexit referendum, Lego decided to end advertising with the paper. In January of this year, Virgin Trains reported it would no longer be selling the Mail on one of its services. An internal memo referred to “considerable concern” about the paper’s “position on issues such as immigration, LGBT rights and unemployment”, which was “not compatible” with the Virgin’s own beliefs.  The decision was reversed one week later, but the media kerfuffle surrounding this episode is illustrative of the Daily Mail’s divisive potential.

dailymail1

No uncertain terms in the headlines

The comments following the announcement of Paul Dacre’s ‘retirement’ were as predictable as his headlines: praise from one side and vilification from the other. But there was one comment that struck me: Dacre gave his readers certainty. Indeed, one thing you can safely say about the Mail is that it is not a great example of nuance. Just like with their reporting on what causes or cures cancer (or sometimes even cures it the one day, and causes it the other!), their views on immigration, Brexit, crime, social media, human rights, drugs, LBGTQ, Muslims and so on are decisively clear-cut.

Ambiguity, no thanks

Generally we do indeed not like ambiguity. As a young economist, Daniel Ellsberg (who would later gain fame by leaking the Pentagon papers) researched decision making, and came up with an ingenious experiment to establish this ambiguity and uncertainty aversion. Imagine you have two urns in front of you. The left one contains 50 black balls and 50 red ones. The right one also contains black and red balls, but in an unknown ratio, with every of the 101 possibilities equally likely. You can pick one ball from either urn (without peeking), and if that is a red one, you win £100 (or $100 or €100). Which urn do you choose?

Ellsberg found that people overwhelmingly choose the urn with a clear 50/50 chance of a win. How likely is it that you would draw a red ball from the right hand urn? There is a slim chance (1/101, just under 1%) that there are no red balls so you would be guaranteed not to win. But there is an equally small chance that there are only red balls, in which case you’d be guaranteed £100. In the same way, it is possible there’s just one red ball, but it’s equally likely that there is only one black one, etc. On the whole, the chance of winning by picking from the right-hand urn is also 50/50*.

We find this preference for the known and the certain also among the human cognitive biases. Maybe most prominent among them is confirmation bias. Being confronted with facts and evidence that conflicts with our prior beliefs makes us feel uncomfortable, so we prefer information that supports them. Another favourite is status quo bias, which describes our preference for the current, known state of affairs, over the uncertainty of the future. Shall we go on holiday to a different country, or with a different provider? Or still “better the devil you know”?  Social proof too is a manifestation of our aversion of uncertainty: when we don’t know what the right thing is to do, we copy others. “Nobody ever got fired for buying IBM” has been losing some of its shine, but for a long time it was a superb illustration of uncertainty aversion in the IT industry. Today, we seek certainty in ratings systems, from eBay ‘s feedback scores to Tripadvisor’s bubbles.

If we are attracted by certainty in situations with balls and urns, holidays or restaurants, then it’s not surprising to see the same thing with even deeper issues of morality. When three judges ruled the government needed the consent of Parliament to give notice to the EU of its intention to leave, did they perhaps have a point? Nope, they were “enemies of the people”. What with gay rights? “NHS to fund sperm bank for lesbians” tells you all you need to know. Are there arguments in favour of legalizing the use of pot? “Cannabis, the terrible truth” leaves no doubt.

urns

Urns of (un)certainty – photo: Beatrice Murch BY CC

The Daily Mail is exceptionally successful in giving its target audience the simplification and reassurance it so appreciates, and to bind it together in a world view utterly devoid of shades of grey, cognitive dissonance and conflict. But that world view, and indeed that kind of unquestionable and unquestioning world view, which appears as unshakeable as religious scriptures, is of course not for everyone.

Certainty, or nuance after all?

Some people feel more at ease with ambiguity, uncertainty and complexity, and believe them to be a better reflection of reality. At first sight that preference looks to be a more rational one than that for unconditional certainty, but to what extent is that true, in particular if we consider striving for happiness as a rational endeavour?

Several studies in the UK (Wales and Essex) and the USA demonstrate a significant positive correlation between happiness and attitude towards Christianity. A similar result was found with respect to Judaism in Israel among female and male participants. A study in Oman observed that, regardless of the religious belief, the level of happiness among people increases with the increasing level of religiousness.

Does the moral certainty that religious people derive from their faith – and by extension perhaps also the moral certainty Daily Mail readers obtain from their daily paper – actually lead to greater happiness? Is a life in which there are few or no uncertain terms a happier life?

Perhaps not so fast. A study, similar to those in the UK, the US and Israel found no correlation between religiosity and happiness among German students. And a meta-analysis on the correlation between religiousness and mental well-being found support “for each position that has been taken within the religiosity-mental health debate”: for a positive relationship, a negative relationship), and indeed no relationship at all.

So it looks like nuance wins out after all. But even people comfortable with ambiguity need some degree of certainty in their lives. Providers of such certainty, real or perceived, will therefore always do well – Paul Dacre and the Daily Mail leading the pack.

 

*: For a hard proof, imagine there are only 4 balls in the urn, but you don’t know how many of each colour. Each of the five possibilities is equally likely: RRRR (four red balls), RRR+B, RR+BB, R+BBB,  and BBBB – each have a 1/5 probability. The chance of picking a red ball for the five possibilities is, respectively, 100%, 75%, 50%, 25% and 0%. To calculate the overall probability, multiply these with the 1/5 probability of each distribution, and add: 100% x 1/5 + 75% x 1/5 + 50% x 1/5 + 25% x 1/5 = 20% + 15% + 10% + 5% = 50% or 1/2. The same reasoning applies for 100 (or any number of) balls.

 

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Your own personal dogma

(featured image credit: Thomas Hawk)

Much of what we do, we don’t really question. That is a mixed blessing

Last Friday evening I was driving back home on the M20 towards London. In the distance I could see a small white car reversing on the hard shoulder. As I approached, I realized what the driver was trying to do: having missed his exit, he was backtracking to back to the junction. By the time I reached him, he had succeeded in his endeavour (to the sound of honking of the other drivers on the slip road).

Just half an hour earlier I had left Nudgestock, the annual behavioural jamboree in Folkestone, and I could not help reflecting on what might have been the driver’s thought process leading to his hazardous manoeuvre. When you miss a junction, there are really only two options: either you stop and reverse (let’s not even entertain the possibility of turning around), or you carry on to the next junction and make your way to your destination from there.

Convenience rules

The first option is by far the most convenient. Continuing your journey as originally planned seems the easiest and quickest. The alternative will not only take you longer, but you also may find yourself on unfamiliar terrain – more inconvenience. However, the second one is undoubtedly much safer than reversing on the hard shoulder, where you run the risk of inadvertently steering your car into the path of the traffic on the main carriageway. If you manage avoid that, you still have to weave into the high-speed stream of vehicles that is leaving the motorway.

reversing

Stupid crazy shit on the motorway (yes, that car is actually reversing) (image via youtube)

Earlier this week, the Belgian Railways Infrastructure company launched a campaign around safety at level crossings. In my native country, there were 51 level crossing accidents in 2017, in which a total of 9 people were killed (up from 4 the year before, and just under the long running average). Few accidents are as avoidable as those at level crossings: in almost all cases they are the result of a deliberate choice to ignore signals and barriers – as a newspaper also just last week illustrated with pictures posted on Facebook, of a group of cyclists riding around the closed barriers.

For some people, it seems, waiting for a closed barrier to let a train pass through is inconvenient – so unbearably inconvenient that they decide it is worth running the risk of being hit and smashed to bits, much like the choice of the reversing driver on the motorway.

Convenience is a powerful force. In a post last Sunday my friend David observes that most of us are full of willingness and good intent to do the right thing – standing up for the weak whenever we can, challenging inequality every single day, diverting any excess income to worthy causes and so on. As long as it is not too inconvenient. Convenience prevails.

The unmade trade-off

It looks as if we, like the driver and the cyclists, we consciously weigh up the effort of doing something that has merits against the ‘convenient’ alternative. But is that really what happens? Did the cyclists deliberately consider whether or not to weave around the barriers to avoid an annoying wait? Did the M20 driver weigh up the risks he was taking against the time he would be saving?

I am not so sure. Convenience can be seen as a heuristic for efficiency. And efficiency is vital for us people (as it is for everything that lives). Nature tends to take the path of least resistance, and for living organisms that means being efficient: not wasting resources on that which does not provide a commensurate benefit. Being efficient has helped us survive and prosper, generation after generation. But if we had to constantly work out in detail whether effort is beneficial, we’d be doing little else. So long ago, in our ancient ancestors, a tendency emerged to err on the side of the least effort when the benefit of an action is unclear without the need for much thinking. Over the centuries, this thinking shortcut, this mental habit has become a prominent factor in our day-to-day decision-making.

That is why “convenience prevails”. More often than not, we don’t make any trade-offs at all. We just follow the heuristic.

cyclists

Stupid crazy shit at the level crossing (image via Facebook)

And heuristics are things we rarely question – if only because they generally seem to serve us so well. But being beyond questioning is a characteristic they share with another principle that influences decision-making: the dogma. That can be problematic for a heuristic as broad as “do what is convenient”, because there are too many situations where following it blindly is not in our interest.

If heuristics are so strong, though, how come it is rare for people to reverse on the motorway, jump closed barriers on level crossings or do otherwise stupid things in the name of convenience? How come I (and I would hope you too) would never dream of doing anything like that?

A more powerful (rule of) thumb

I guess the reason is simple: another heuristic. When I miss a junction on the motorway I carry on until the next junction. When the bell is ringing, the red lights are flashing and the barriers are closing or down, I just wait. I don’t do so because I make a conscious trade-off, I do so because my “Don’t do stupid crazy dangerous shit” rule of thumb is not negotiable.

Perhaps that makes it look like a dogma – well so be it. Maybe, ideally, we should stay away from such immutable rules that take away our freedom to choose, and assert our right to weigh up all the options at all times. But we cannot possibly do that, so we have to rely on rules of thumb that we can follow without thinking. They are part of how we function for good reasons.

That doesn’t mean we cannot use them to our advantage. We cannot get rid of the dogma of the “convenience” heuristic, but we can override it with other ones. By developing and adopting additional rules of thumb, we stop ourselves doing stupid crazy unsafe shit, saving ourselves a great deal of trouble. With a bit of effort (yes I know, it’s not convenient), maybe we can also forge personal dogmas that helps us do the right thing whenever the convenience of inaction and postponement beckons.

We are all hardwired to obey our personal dogmas. But it’s up to each of us to determine what they are.

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