Behaviorism And Its Momentum

November 18, 2018

Happy Sunday everyone!

Unfortunately, I haven’t had much time to work on a fleshed out post this week, but I have an interesting one in the pipeline (hint: it involves the branding behind Drake and the human amygdala).

In the meantime, I figured I’d take a look at the momentum of a passion topic of mine: behavioral economics.

I’ve written a bit about behavioral economics on my blog, but I thought it’d be interesting to take a step back and look at interest for the topic at hand.

Interestingly enough, the queries for the term “Behaviorism” look to be cyclical when looking at the trend line on a global scale, with most of the queries coming from the African continent. The peaks happen from February to May and September to December, while the dips occur in late July and late December. The peak in the trend line for “Behavioral Economics” occurred around the time that the Noble Prize was awarded to Richard Thaler for his work on the topic. I wonder if the increase in terms have to do with psychology students in school that have to look up the term.

When looking at the trend lines focusing on USA, we see a similar seasonal trend for the term “Behaviorism”, with the peaks occurring in late August/early September and the dips around mid-December. Being that the school year usually starts around late August/early September, Being that some of the top related queries for the term “Behaviorism” are related to pet behaviorists in the vicinity, could it be that most people are looking up for a pet behaviorist around this time? Or is the start of the school year (which coincidentally happens around late August/early September) have to do with the peaks we’re seeing? Last theory: could it be that investors are conducting research on behaviorism leading up to the dreaded month of October? Some food for thought until next time… Would love to hear any thoughts on the subject though!

Poker Face

September 23, 2018

The game of poker provides a great framework for understanding not only the problems in decision-making, but also how we can solve for them. In poker, you don't know your opponents cards and you don't know what they're thinking. In settings in which only partial information is provided, decision-making becomes difficult, tricky, and often contaminated by bias. Essentially, the decisions we encounter in our every day lives are similar to making bets in poker games in that we don’t necessarily have all the information when making decisions. Every decision is a bet.

Renowned professional poker player turned professional speaker and decision strategist, Annie Duke merges her experience in poker with her cognitive psychology graduate work at UPenn to examine decision-making. In her most recent book “Thinking in Bets: Making Smarter Decisions When You Don't Have All the Facts”, Annie explains how to best manage having less than perfect information when making decisions - situations we likely find ourselves encountering on a daily basis.

I came across the above Google Talk recently. Some key take-aways from the discussion include:

What prevents people from making good decisions? “I think it's a collision of a couple of problems. I think that the first piece is uncertainty, and uncertainty comes from two places. It comes from hidden information. So this is where we can see how poker might be a really good way to look at decision making (cards are face down).... But, even if we did have perfect information - say for example, about a coin, and we know that heads or tails it's going to flip 50% of the time, we also have the intervention of luck, which is the other form of uncertainty... The second problem is that nature, the way that our brains are built has given us a lot of rope to sort of hang ourselves with the uncertainty...”
It would be impractical to wait to have all the necessary data to make a decision in many cases.
There are type 1 errors and type 2 errors. Type 1 errors are false positives and type 2 errors are false negatives. As humans, we're built for false positives. We connect occurrences together and believe that there’s causality. Being that we think that things are falsely connected together, a problem arises.
We're inherently built for tribes, which causes problems for decision-making. These “echo chambers” we live in stress the fact that people outside of our tribe are not trusted sources of information, leading to a lack of outside perspectives.
"Motivated reasoning" is a large problem. While confirmation bias is based on a prior belief we might have, motivated reasoning is when we’re motivated to confirm the belief we have and that motivation drives our information processing. When confronted with information that disconfirms us, we’ll work hard to discredit it, and on the opposite side the coin, when confront we’re confronted with information that confirms us, we don't put any effort into discrediting it.
After receiving the results from an unsuccessful bet, your ability to go back and analyze the decision process is distorted - aka “resulting”.
How can we separate outcomes from decision quality? When possible, deconstruct decision before outcomes have occurred.

Ultimately, what I extracted from the Google Talk, is that approaching decisions in a probabilistic way, making sure to include the opinions of people who offer different viewpoints, and learning the right lessons from outcomes are all habits that’ll improve decision quality. If you’re a little bit better at making good decisions, that’s going to compound over time since better overall decision quality will lead to better quality outcomes.

How Moneyball Led To Understanding Behavioral Economics

August 19, 2018

Remember Moneyball? You know, the movie with Brad Pitt and Jonah Hill that came out a few years ago? If you haven't seen it or don't remember what movie I'm referring to, the film was centered on the 2002 Oakland A's baseball team and their General Manager (now Executive Vice President) Billy Beane, who used an evidence-based, statistical approach to recruit undervalued baseball players and take the financially strapped team on a stellar winning streak.

What does Moneyball have to do with behavioral economics?

Well, the film's based on a book written by American Author Michael Lewis, which was published in 2003. Unbeknownst to Lewis, behavioral economics was at the core of Billy Beane analytical method, showing that statistics can do a lot better than intuitions. According to The New Yorker, Lewis read The New Yorker's book review, began to take an interest in the whole topic of human rationality, and, improbably, decided to write a book about Kahneman and Tversky. Lewis kindly even gave them credit for setting him down that path.

At this point, it'd be safe to assume that readers/behavioral economics aficionados are familiar with the names Daniel Kahneman and Amos Tversky.

Unexpectedly, writing Moneyball eventually led Lewis to write his latest publication, The Undoing Project: A Friendship That Changed Our Minds, the story behind the two Israeli psychologists who eventually shifted the world view from the economic theory of homo economicus to "homer economicus", aka what Dan Ariely describes as the human tendency to be predictably irrational.

Discover & share this Homer Simpson GIF with everyone you know. GIPHY is how you search, share, discover, and create GIFs.

I recently came across an interview featuring Lewis in which he dives into the process of writing the story of the relationship between Kahneman and Tversky. Some of the key take-aways from the interview include:

Moneyball was about misjudging assets (in this case, baseball players). Players that looked like they were "players" or good-looking players had a tendency to be overvalued.
"What people do together can get very interesting if the right people collaborate".
Kahneman was "immune to social embarrassment".
No one could see how the relationship between Kahneman and Tversky worked - "Amos had no time for difficult people. He thought life was pretty simple and he thought people were basically pretty simple and the complexity they added was mostly bullshit. But every now and then, a complicated person entered his life, because this person was complicated in an interesting way."
Kahneman brought an artistic imagination to the work of the two scientists.
What Amos did was take the ideas of Kahneman and try to turn it into math and logical to frame them into a way to publish them in a academic papers.
The backdrop of Israel, being part of the Israeli army and what they saw in the war played into their insight into Prospect Theory.
As a young Jewish boy, Kahneman and his family hid from the Nazi's in France, having decided not to go back to Israel due to his father misjudgment of the intention of the Germans.
The unpublished study on "rules of human imagination" - People have a tendency to create alternative realities, involving "if only" statements.
People don't decide between things. People decide between description of things. If you change the description, you change the decision.
The ultimate point of Kahneman and Tversky's work was that "fallibility is human".
While you can't see your mistakes, sometimes other people can. Does that mean we're condemned to a cycle where we need someone else to check our biases? Yes.

I quite enjoyed the interview and would suggest it to anyone looking for a little context behind what led to the findings of behavioral economics. Here's another book to add to my summer reading list.

"Satisficers"

April 15, 2018

It's quite fascinating to reflect on how irrational people can be.

And it's perfectly normal to be irrational. We can't be completely rational all the time right?

This irrationality is part of our bounded rationality. According to Herbert Simon, recipient of the Nobel Prize in Economics in 1975, people have cognitive limitations and because of that, we go about making sub-optimal decisions in our everyday lives. Through this lens, people unconsciously act as "satisficers" in their decision-making, seeking to make a satisfactory decision instead than an optimal one. In order to facilitate the decision-making process, we act on instincts, habits, heuristics, cognitive illusions, and biases - leading us to "satisficing" decisions.

This is innate within all people. During this unconscious part of the decision-making process, we formulate stories - stories that support our beliefs.

Thomas Gilovich, Author and Professor of Psychology at Cornell University who has contributed to the behavioral economics field, describes these stories as a result of "Patternicity", the tendency to create meaning from events. While this evolved trait (think hunter-gatherers hearing rustling in the grass and believing it might be a predator) greatly served our ancestors, "patternicity" leads to irrationality, poor decision-making & bias.

While the topic of ethics relating to behavioral economics makes for another blog post, marketers have been using the underlying biases in "satisficers" to create effective marketing campaigns advantages for decades. From loss aversion to anchoring, there are plenty of biases for marketers to utilize. With that being said, potential consumers can offset this targeting by being "intuitive scientists" - a nice little secret from Thomas in the video above.