Tuesday, August 26, 2008

** Gut Feelings by Gerd Gigerenzer

Go with your gut! Turns out that your gut feelings might be right after all. In some aspects of your life (social, and environmental) your gut feelings might not only be quicker than your conscious brain, but may even be more accurate in their assessment. It seems that evolution has had millions of years to hone your unconscious skills in evaluating the behavior of others, and in assessing the lay of the land when you encounter the environment. This makes sense if you think about how complex these situations are. To consciously evaluate and weigh all of the information and then choose a reaction would take too long, and you’d end up on the wrong end of a pointy object or tooth. So your gut instinct is there to make a quick decision, probably erring on the side of what is more safe. Don’t get carried away and use this as an excuse to follow your gut in any and all situations. Your gut is blind to probability and statistics. So decisions that involve complex scenarios and mathematics are ones are that will require you to forgo your gut often, and trust your higher brain. So if you see the dice roll 7 , 4 times in a row, your gut will tell you to bet against 7, but your higher brain will realize that each throw is independent, a non-7 is not any more likely. However, when it comes to matters of the heart or sizing up a person, your gut is often very accurate in assessing them. So don’t discount this information. But be warned, don’t also become a stereotypist.

Maximizers get a lot done, but aren’t happy about it
Weighing the pros and cons does not generally make us happy. In a study, people were asked about various everyday activities such as how to decide which TV programs to watch in the evening . Did they survey all of the channels using the remote to flip back and forth, constantly checking? Or did they quickly stop searching and watch a good enough program? People who reported the exhaustive approach were called maximizers, because they tried hard to get the best. The other were called satisficers. Satisficers were reported to be more optimistic and have higher self esteem, where as maximizers excelled in depression, perfectionism, regret, and self blame. P6

If you know what you’re doing, then stop thinking about it.
In an experiment, novice and expert golfers were studied under 2 conditions: they either had 3 seconds for each putt, or all the time they wanted. Under time pressure, novices performed worse and had fewer target hits. Yet surprisingly, the experts hit the target more often they had less time. In another experiment, players were instructed to pay attention to their swings, as one might expect, novices did better when than when they were distracted. Yet with the experts, it was again the opposite. When they concentrated, their performance decreased. How can we account for this paradox? Expert motor skills are executed by unconscious parts of our brains. Setting a time limit is one method to make consciously thinking about the swing difficult, or providing a distracting task. Since our conscious attention can focus on only 1 thing at a time, it is fixed on the distracting task and can’t interfere with the swing. P33

The speed/accuracy trade-off is one of psychology’s well established ‘more is better’ principles. But this earlier research was generally done on na├»ve students rather than experts, where we have seen that more time, thought, attention is not better. In such cases, too much thinking can slow down and disrupt performance. With processes that run best outside conscious awareness, more is not necessarily better. P35

In competitive sports, this insight can be used to deliberately undermine your opponent psychologically. For instance, while switching courts, ask your tennis opponent what he is doing to make his forehand so brilliant today. You have a good chance of making him think about his swing and weakening his forehand. P36

Here is where less is truly more:
1. A beneficial degree of ignorance caused by your unconscious perceptions of the environment around you
2. Unconscious motor skills
3. Cognitive limitations due to the fact that our brains have built in mechanisms such as forgetting and starting small, that protect us from some of the dangers of possessing too much information.
4. Freedom of choice paradox. The more options one has, the more possibilities of conflict arise, and the more difficult it becomes to compare options.
5. Benefits of Simplicity. Simple rules of thumb can predict complex phenomena as well as or better than complex rules.
6. Information costs. Extracting too much information can harm a relationship. Being overly curious can destroy trust. P38

Love at first sight is not a myth
1/3 of Americans born as recently as the 1960s married their first partner. Marriage counselors often disapprove of people who marry the 1st or 2nd partner, and economists likewise complain about limited rationality in partner choice… Important social and emotional decisions –whom to marry, where to work, what to with your life – are not only a matter of our imagined pros and cons. Something else weighs in the decision process: our evolved brain. It supplies us with capacities that have developed over millennia but are largely ignored by standard texts on decision making. It also supplies us with human culture, which evolves much faster than genes. P54

Unlike humans, chimps simply don’t seem to care about the welfare of unrelated group members. When a chimp has the choice of 2 levers, one disposes food only to himself, and the other to both him and an unrelated chimp, the first chimp has no preference (beyond right/left handedness) in his choice, much to the dismay of the begging desperate other chimp. P66

Screw you pal!
Imagine someone is in control of offering you an amount of money, if you accept it, you get to keep it. Why would you ever reject this offer? Well it turns out most people do under the following circumstances. Lets say the proposer offers you $1. Take it you say! Well, the proposer must have you accept his offer, and only if you accept do you earn that amount. But did you know that the proposer earns $10 minus the amount owed to you. So does this fact change your decision to happily accept the offer of $1, while the proposer makes $9?
The most frequent offer is not $1 (what rational economics would warrant), but $5 or $4. Thus people seem to be concerned with equity. Even more surprising, about ½ of those who were offered $1 or $2 rejected the money and preferred to take nothing. They were annoyed and angry for being treated unfairly. P68

Another variation of this game –called Dictator – basically removes the requirement for the other party to accept the offer. Thus the dictator can offer $1, and keep the $9 without issue.
Yet even when the other party has no possibility to reject, a substantial number of people give away some of their money. In the US, Europe, and Japan, dictators typically keep 80%. German children’s most frequent offer was an equal split. Across 15 small scale societies from Africa, Asia, and remote places, pure selfishness could not be found… This capacity of altruism divides us from other primates. P69

Guys are not as clued out as they lead on…
Men and women were asked to study pictures of faces, and then judge whether the smile was genuine or not.
Before studying the faces, the participants were asked to rate their abilities. 77% of women said that they were highly intuitive, compared to only 58% of the men. Yet the women identified the real smile only 71% of the time compared to 72% for men. And men could better judge women’s genuine smiles than those of other men, whereas women were less adept at judging the sincerity of the opposite sex. P71

Rats are smarter than you think
A rat is put in a maze where 80% of the time, there is food on the right, and 20% on the left. The amount is small, so it runs over and over again. Rats turn right most of the time, but sometimes they turn left, though this is a worse option, puzzling researchers. According to the logical principle of maximizing, the rat should always turn right, because it can expect food 80% of the time. Instead, the rat turns left 20% of the time, and its behavior is called probability matching. This results in a smaller amount of food – 68% vs. 80%. Has evolution miswired the brain of the rat? We can understand their behavior once we look at their natural environment where a rat competes for food with other rats. If all rats are maximizers, then all rats will turn right, and the food will be untaken on the left 20% of the time. P75

Management Tip
If someone gets an award or does really well at work, have him or her provide the cake/cookies/treats to the rest of the team. He or she has to buy it/bake it, turning everyone else into a beneficiary and sharing success rather than creating a climate of envy. P78

Why the average Joe is a better stock picker than your broker
A group of laypeople were asked to make stock picks. They performed at chance level, and 50% of their stocks went up. How well did the pros do? They picked the winning stock only 40% of the time! The pros base their predictions on complex information concerning each stock, and heavy competition leads them to create stock picks that vary widely from one to the next expert. Since not everyone can be right, this variability tends to decrease overall performance below chance. P80

We can still do something better than a computer!
People were shown 10,000 facial pictures for 5 seconds each. 2 days later, they correctly identified 8,300 of them. No computer program to date can perform face recognition as well as a human child. P111

When is it safe to follow the most ignorant person in the group?
Imagine a group of 3 people who have to determine which city has more people – Detroit or Milwaukee (answer is Detroit)? None of them knows for sure. You’d think majority rule would be the case, but 2 members had heard of both cities, and independently concluded that Milwaukee is bigger. But the 3rd, more ignorant, had not heard of Milwaukee. Surprisingly, 59% of the groups chose Detroit in this situation. And that number rose to 76% when two members relied on recognition only… When 2 groups had the same recognition and knowledge validity, the group who recognized fewer cities typically had more correct answers. For instance, a group that recognized only 60% of cities got 83% correct vs. a 2nd group that knew 80% and got only 75% correct. Group members seemed to intuitively trust recognition, which can improve accuracy. P125

Build a big brand baby!
Brand recognition can be seen clearly. Participants had a choice of 3 jars of peanut butter. In a pretest, one brand had been rated higher quality, and participants could identify this brand 59% of the time in a blind test. With another group, labels were put on the jars. One label was for a well known brand that all participants recognized, other 2 labels were for brands with no recognition. The high quality peanut butter was placed into these no-name labels. This time 73% chose the low quality product in the well know brand label. Name recognition was more influential than taste recognition. In the last experiment, the same peanut butter was placed into all 3 jars, and again 75% chose the well known label as the best. Nor did marking one brand with a higher price have much effect. Taste and price mattered little compared to name recognition. P128

The competition for space in consumer’s recognition memory can impede or conflict with any interest in improving the product itself… When consumers can only tell the difference between competing products by looking at the label, brand recognition becomes a substitute for genuine product preferences (taste, price, quality, etc.). p128

Blind taste tests have repeatedly shown that consumers were unable to detect their own preferred brand. Some 300 randomly selected American beer drinkers (3 times per week) were given 5 national brands. The beer drinkers assigned ‘their’ brands superior ratings over all competitors, as long as the label was on the bottle. When the test was blind, none of the groups favoring a certain brand rated it as superior! P129

5 are too much for my head!
An adult with no special training has a direct perception of up to 4 people. That is one immediately knows how many others are in the room, if they don’t number more than four. P155

Hey doc, how come you don’t do what you say?
75% of women over 50 get screened for breast cancer. Physicians fear being sued if they don’t recommend that their patients get screened. “I believe mammogram screening should not be recommended. But I have no choice. I think the medical system is perfidious, and it makes me nervous.”… When asked, all 60 physicians the question – would you participate in this screening yourself? Not a single doctor participated in the screening, and no male physician said he would do so if he were a woman! P163

The rate of hysterectomy in Switzerland is 16% in the general population, but only 10% among doctors, and 8% among lawyers (lawyers seem to be regarded as especially litigious patients who should be treated with caution when it comes to risky procedures like surgery). P163
Don’t ask your doctor what he recommends. Ask him what they would do if it were their mother (wife, child, etc).

The pitfalls of opting in
Why are only 28% of Americans potential organ donors whereas 99.9% French are? Why are only 12% Germans, compared to 99.9% Austrians? They share the same language and culture… In countries like the US, England, and Germany, the legal default is that nobody is a donor without registering to be one. You need to opt in. In France, Austria, Hungary, everyone is a potential donor unless they opt out. P 183

That's totally gross!
Julie and Mark are brother/sister, traveling together in France on summer vacation from college. One night they decide to make love, using both birth control pills and a condom, just to be sure. They both enjoy it but decide not to do it again. They decide to keep it a secret, making them feel closer to each other. What do you think about that? What do you think about that? Why do you feel so repulsed?
* There's no danger of inbreeding given the measures taken.
* As long as they keep it secret, no one else need know, so no risk of shame.
* It's not hypothetical. Throughout history, royal families have done this without universal revulsion.
Reasoning rarely engenders moral judgment, rather it searches to explain or justify an intuition after the fact. P190 If you didn’t feel revolted, and you have an opposite sex sibling, simply replace Mark & Julie with your sibling and you, and repeat the scenario. Now how do you feel?

Darwin figured it out a long time ago
How did community instinct evolve? Darwin proposed “A tribe including many members who from possessing in a high degree the spirit of patriotism, fidelity, obedience, courage and sympathy, were always ready to aid one another, and to sacrifice themselves for the common good, would be victorious over most other tribes; and this would be natural selection.” P211
Primitive societies get by with less trust: in small groups it is possible to watch each other all of the time. The more you are able to control and predict the behavior of others, the less you need to trust them. Cooperation in an uncertain technological world requires a tremendous amount of trust, making it the lifeblood of a modern community instinct. P214
If we find our home robbed by a stranger, we feel angry, but when the robber is our trusted baby sitter, we feel betrayed. P214

Why and when we imitate
Imitation can pay in a world with little feedback… Most people have only a few children, and it takes a long time to see the results of their upbringing. And even then parents still don’t know what the results would have been if they had acted differently… In these cases, imitation can pay, whereas individual learning has its natural limits. P219

Imitation can also pay in situations with dangerous consequences. Food choice is a case in point. Relying only on individual experience to learn which berries are poisonous is obviously a bad strategy. Here imitation can save your life – although it may cause false alarms – by having you avoid otherwise healthy food that is shunned for whatever reason (think pork for Jews, or beef for Hindus). P219

Wednesday, August 20, 2008

** Logic of Life by Tim Harford

Many things we do might seem irrational, but when viewed from a wider perspective, actually reveal a rational and predictable basis. This book details how homosexual habits, racism, addiction, and many other 'irrational' behaviors are not really irrational after all. That doesn't mean that these are good or moral, but just that they are not irrational. Don't confuse one for the other. Good and bad are all relative as well.

Rampant oral sex in junior high; just another case of teens acting responsibly it seems...

Oral sex isn’t a symptom of more promiscuous teenagers. In fact, it’s a sign that teenagers are behaving more responsibly, in enthusiastically and rationally choosing an alternative to riskier sex – intercourse… Since abortion notification laws make it more difficult for teenagers – but not adults – to get an abortion, they should discourage risky intercourse among teenagers relative to adults. P5

Further, if oral sex is a substitute for regular sex, isn’t it at least possible that heterosexual sex is a substitute for homosexual sex? The rise of AIDS has made sex with men more risky than it used to be… Researchers discovered that both men and women with a relative who had AIDS were less likely to have sex with men, and less likely to say that they were attracted to men. P7

Feeling good about that raise? Well that should only last until lunch time

Researchers advertised and hired workers for simple jobs. ½ of the group was paid the advertised wage, the other ½ was paid an unexpectedly high wage. As predicted the grateful recipients of the higher wage worked extra hard. But in the real life setting, these warm, fuzzy feelings didn’t last very long; just 90 minutes for data entry workers. P17

Mathematical genius whores from Mexico

The risk that Mexican prostitutes take when they leave the condom in their purses seem to be strikingly well judge. The typical prostitute is acting as though she valued 1 year of extra healthy life at between $15,000 to $50,000 dollars – 5 years of income. (Prostitutes get paid 25% more to have sex w/o a condom.) In Mexico, only 1 in 800 carries HIV, and among prostitutes the rate is 1 in 300. The risk of catching HIV during unprotected sex is about 1 in 50 (2%) if either partner has some other STD, and less than 1% otherwise. The risk of catching HIV because of one instance of unprotected sex is small, while the pay is substantially higher. P27

Try this for your hometown

You have arranged to meet a friend in NYC tomorrow, but because of a breakdown in communications, neither of you knows where and when to meet. What do you? Students (who commuted by train) suggested meeting at noon under the clock in Grand Central. Tourists chose the top of the empire state building at noon. P50

Addiction is rational…

People who consume addictive products – cigarettes, alcohol, gambling – calculate that the pleasure of the habit will outweigh the pain… Each had made a rational decision to start knowing there was a chance they’d end up miserable and hooked, and now they were making a rational decision to continue rather than endure the greater misery of kicking the habit. P54

It can also be rational to get hooked in the first place. Imagine a young man who is thinking of trying a new drug. He knows that everyone who tries it loves it, at least at first. Some users find their lives degenerating into an increasingly desperate attempt to recapture that initial buzz, leading to the pain of cold turkey or eternal, unfulfilling addiction. Others seem able to enjoy the highs and remain quite content for the rest of their lives. He has no way of knowing which category he will fall. Is it rational for him to ingest the drug? If you say ‘No’, read the paragraph again but replace trying a new drug with getting married, and cold turkey with divorce. P54

Because addiction is self-reinforcing, with each fix creating greater desire for the next fix, cold turkey is a rational way to quit. The surprising implication is that addictive goods can be MORE sensitive to price changes than non-addictive goods, and addicts may pay more attention to price than light users do. Light users may cut back, but heavy users might prefer to stop entirely. It sounds ridiculous but turns out to be true: When a county raise liquor taxes, the local consumption of alcohol falls, but the local death rate of cirrhosis falls more sharply. In other words, when the price of booze increases, alcoholics are the ones who most cut down. P55

You marry yourself it turns out

Whom you marry does tend to depend on where you live, but also on how old you are, and what race you are. Most people marry the same race, similar age, and from same area. 96% of black women marry black men, and 96% of white women marry white men. P74
For every year a woman delays having her first child, her lifetime earnings rise by 10%. Of course someone who delays having children might earn more simply because her career is her priority, but you can get around that statistical minefield by looking at women who by miscarriages or accidental pregnancies, do not have children at the time they would have chosen. These random misfortunes all point in the same direction: A year’s delay adds about 1/10th to lifetime earnings. P78

Women really could be better at everything
There is no reason to believe that men were the breadwinners because they were any good at it. They might simply have been breadwinners because getting them to help around the house and with the kids would have been even worse… A small difference in relative expertise between men and women would be enough to cause a sharp division of labor across traditional sexual roles. P82

Why divorce is a good thing

Once divorce rates began to climb, it was no surprise that they increased dramatically… The more people divorced, the more divorcees – that is potential marriage partners – you could meet. That meant that it was easier to get divorced yourself and find a new partner. P83
No fault divorce laws had an unexpected but rational effect: by giving women an exit option, they gave men a stronger incentive to behave well inside a marriage. The result? Domestic violence fell by almost 1/3, and the number of women murdered by their partners fell by 10%. Female suicide also fell. P86

Why your boss is overpaid
The salary of the VP acts not so much as motivation for the VP as it does as motivation for the assistant VPs. Economists don’t even pretend that your boss deserves the salary. P99
Experiments have proven that neighborhoods matter very much indeed for some facets of life, and not at all for others. The facts are these: Adults and children who moved to richer neighborhoods [from the poorest ones] were much happier and safer. Children were 4 times less likely to be seriously injured; behavior problems fell by 25% for girls and 40% for boys; severe asthma attacks fell by 2/3s. Children were 5 times less likely to be attacked, robbed or threatened. Adults were about 1/3 less likely to suffer from major depression, and their overall health improved… At the same time, the experiments showed that adults who moved to the new, low poverty neighborhood were no more likely to find a job. Children didn’t improve their test scores, and kids who moved were just as likely to get into trouble with the law after the move as beforehand. P129

Keep your new education/training a big secret
Would you tell an employer that your training to acquire the skills to switch industries? Your boss might accept your decision with a shrug, but he’s certainly not going to include you in his long term plans. When he has a promotion to hand out, you can bet you won’t be near the top of the list. Your option to escape means that you can’t be relied upon. P143

To a typical white student, studying hard does not offer an escape route from the society that surrounds him. His parents, extended family, peers are holding down the kind of jobs that come from an education. But as long as African Americans remain disadvantaged and clustered together in ghettos, a black student is acquiring the ability to escape from poverty, crime, and deprivation – and from those around him. People don’t like to see their friends developing escape plans; even the option to escape makes us nervous. P143

Do you attend the University of Life? I bet most of you do
Not only do cities allow people to learn from one another, but the people who have the most to gain from that process – people who depend on making connections – are the people most drawn in by the big cities. The idea of a successful city is a kind of University of Life, a place to learn from others. P154

Why do firms put up with paying such high salaries when they could move to small towns and hire workers more cheaply there? The only rational explanation is that workers in big cities are more productive in some way. There are 3 possible reasons why they might be. The first is that city folks are just smarter, but equally educated rural dwellers would eliminate this. The second is that workers happen to be lumped together within walking distance which saves on time and effort. But this is negligible savings, and can’t justify the wage differential. Here is what is really going on. Whenever workers are in big cities, their wage grows faster. Move to the country and even if you keep your wage, the rate of growth will slow. Move back to the city, and the pay raises start to mount again. The real wage premium is not paid to people who work in cities, but to people who did work in cities for long periods of time. P157-8

The more knowledge intensive an industry is, the more that industry is concentrated in a small area. Looking at the locations of over 4000 commercial innovations, economists have found that more than ½ came from just 3 areas: California, NY/NJ, Massachusetts. Almost ½ of all computer breakthroughs were developed in CA. Almost ½ of pharmaceutical innovations were created in NJ. P161

The industrial revolution was really just about cutting costs

The invention of producing cheap iron via coal (coke) did not spread to mainland Europe triggering an industrial revolution outside of England for the simple reason that Europe’s coal was too expensive, since most of it was shipped from Newcastle, England. Coke smelting in France or Germany was technologically possible but just not profitable for another 150 years. This turns out to be an unusually straightforward reason for the delay, and on closer inspection it turns out to be true for many of the Industrial Revolution’s technological advances… British workers at the time were the highest paid in the world. Thus any labor saving devices would pay big dividends. In Britain a spinning jenny (cotton gin) cost less than 5 mos salary, while in low wage France it cost more than 1 year’s wages. It was cheap French labor that accounted for the slow take up on continent not the supposed superior British scientific ingenuity or commercial acumen… All this shows that many of the important innovations of the Industrial Revolution were calculated and deliberate response to high British wages and cheap British coal. P198

Europe started to become decisively richer than China between 1500 and 1800, as opportunities to trade with the new world opened up. This wealth increase was confined to the nations engaged in the Atlantic trade: Spain, Portugal, France, Netherlands, England. Eastern European and Mediterranean countries missed out… The Atlantic trade dramatically strengthened the merchant class when it existed. Where it did not, the profits accrued to the monarch – to the eventual disadvantage of Spain and France, and the rises of the Dutch and English. P202

Why you're the master of your dog instead of the other way around

Division of labor may have meant one family trading with another or one community trading with another quite far away. Even 40,000 years ago, human settlements were using stone tools from other regions, wearing seashells far from the sea… Nobody ever saw a dog make a fair and deliberate exchange of one bone for another with another dog. In this respect, for all of their brainpower, Neanderthals appear to have been more like dogs than humans. There is no sign that they ever traded. That would have been a big disadvantage. Computer simulations show that the propensity to truck, barter, exchange could easily have allowed humans to wipe out Neanderthals in a few thousand years, even if the typical Neanderthals was stronger, faster, and smarter too. P208

The odds of you having 1 good idea in your lifetime are less than 1 in 10 million

Assuming 1 brilliant idea per 1 billion people per year, then the million strong Homo Erectus population of 300,000BC would have been coming up with 1 good idea every 1000 years. By 1800, with 1 billion people in the world, the rate would be 1 stunning idea annually. By 1930, it would be every 6 months. Today with over 6 Billion minds, it is every 2 months. This simple model (by Michael Kremer) fits the data perfectly. Kremer suggests simply taking population growth as a measure of technological progress. The faster the human population is able to grow, the more advanced the technology must have become. P211