Thinking Err0rs

When should we use conscious thought, and when should we use our gut? A set of experiments published in Science¹ give us practical insights.

Test subjects were asked to rank cars based on a set of features. Half the participants were distracted for a few minutes before being asked to give their rankings.

If the listed features were few (four), the group that was not distracted gave better answers: their rankings better reflected the number of positive and negative features for each car.

What came as a surprise was that given a longer list of features, those who were distracted came up with the better rankings. In other words, disrupting their rational thinking led to a better outcome.

These lab results have been confirmed through questionnaires about real life decisions.

How could this happen? We humans take pride in our rational thinking prowess. How could a gut decision be better than a carefully planned one? Recent findings about the brain help answer this question.

Our rational thinking involves the prefrontal cortex, an area of the brain that is recent in terms of evolution. We humans do indeed have a type of computing power much of the animal kingdom does not have. This new computer comes with limitations. It has limited working memory (RAM, in computer terms). In fact, it can only hold half a dozen to maybe a dozen items at any one time. ENIAC could store twenty.

Older parts of the brain do carry decision making capabilities. Animals without a prefrontal cortex do make decisions. As seen in the car buying experiments, our rational thinking can get in the way of a good decision.

So, how do we know when to use our gut? Roughly speaking, if we are making comparisons based on few features, we should use our rational thinking abilities. We should analyze the available data. If there are many features, we are better off using our gut.

Where is the cutoff? Seven plus or minus two “items” has been proposed by psychologist George Miller. When we have to deal with more items, we take shortcuts. We count in “scoops” instead of counting the pieces of candy. These shortcuts are the source of many thinking errors. These are for another day. For now, a rule of thumb: if you are dealing with more than seven variables, browse through, relax, do something else for a little while, then go with your gut.

How does the sight of a dorsal fin in the water elicit this immediate reaction? The answer lies in auto-associative memory, the ability to recognize incomplete patterns.

This skill is not limited to vision. We can hear a tune and recognize it, even if a note or two are missing. Sometimes we are so sure what we are hearing, we don’t even listen to all the words in a sentence. This is when things go wrong.

Hearing what we wanted to hear may have caused our latest financial crisis. For Nassim Nicholas Taleb, author of The Black Swan, errors of perception are what got us in trouble.

So, how did we miss all the sharks? Sadly, it may be because our brains evolved to deal with a world much simpler than the one we currently live in. The situation may not be hopeless if we look at the problems one at a time. An editorial by David Brooks in the New York Times tells us the errors were many: “our tendency to see data that confirm our prejudices more vividly than data that contradict them; our tendency to overvalue recent events when anticipating future possibilities; our tendency to spin concurring facts into a single causal narrative; our tendency to applaud our own supposed skill in circumstances when we’ve actually benefited from dumb luck. And looking at the financial crisis, it is easy to see dozens of errors of perception. Traders misperceived the possibility of rare events. They got caught in social contagions and reinforced each other’s risk assessments. They failed to perceive how tightly linked global networks can transform small events into big disasters”.

Where do we go from there? One key is metacognition: we need to think about how we think. We can be trained to do better at analyzing our own thinking. We can be taught to recognize patterns in our thinking (and maybe not try to see patterns in the stock market). This is what our workshop is about: help people recognize and deal with individual thinking errors.

Another approach does not require us to acquire an explicit understanding of the problems. Flight simulators have reduced accidents. People can be taught to intuitively react to complex situations. How about putting ourselves through simulated trading of past market bubbles? Test the choices we make, and learn to do better (without losing our life savings). Could such things be added to an MBA curriculum?

In this video, top scientists explain their thoughts. They do this with the help of volunteers making decisions while being monitored by fMRI.
 

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YouTube DirektCurious: decisions, decisions

 Part 1: how the brain works

How is it that we allow slot machines to systematically and predictably drain our wallets?  You would think we were smarter than that.  But recent advances in brain imaging show us how our brains get fooled by those clanking flashing one-armed algorithms.

Functional magnetic resonance imaging studies show that certain areas of the brain become active when we receive a reward. Give a person (or a rat) a reward, like a tray full of silver dollars (or a piece of cheese) and an area called the nucleus accumbens lights up as our dopamine neurons spring into action.

But that’s not all they do.  They like rewards so much that they try to predict them.  They compulsively look for things that signal an imminent reward.  They look for patterns.  If a sound precedes a reward, the neurons become active in response to the sound. 

The flaw in the process is what happens when they can’t find a pattern. Then the reward comes as a surprise, which our brain treats as an even more enjoyable reward.

This heightened response to an unpredictable reward is exactly what slot machines exploit.  They pretend to be unpredictable while being entirely predictable (they’re programmed to give you between 94 and 98 cents for every dollar you wager, which is why, at the end of the day, the house always wins).  The algorithms of the slots are smarter than our dopamine neurons.

Part 2: practical applications

We now know that our brain is wired so that random rewards give us more pleasure than rewards that are predicted. How can this be applied?

The answer may be surprisingly simple: add a little randomness to your life. Do something positive and unexpected. You may not need to change what you do, just when. How about sending your customers a thank you note this spring (and skip the predictable year end mass mailing?) How about buying your spouse a rose on the way home?

If you do this right, you may see your customers become addicted to your brand, your employees stick with you, and your relationships improve. So get started. It works best if it’s random. How about calling someone to thank them now?