Bounded Rationality and Beyond
35.6K views | +3 today
Follow
 
Rescooped by Alessandro Cerboni from Radical Compassion
onto Bounded Rationality and Beyond
Scoop.it!

8 Common Mistakes in How Our Brains Think and How to Prevent Them - Belle Beth Cooper

8 Common Mistakes in How Our Brains Think and How to Prevent Them - Belle Beth Cooper | Bounded Rationality and Beyond | Scoop.it

Get ready to have your mind blown.

 

I was seriously shocked at some of these mistakes in thinking that I subconsciously make all the time. Obviously, none of them are huge, life-threatening mistakes, but they are really surprising and avoiding them could help us to make more rational, sensible decisions.

 

Being aware of the mistakes we naturally have in our thinking can make a big difference in avoiding them. Unfortunately, most of these occur subconsciously, so it will also take time and effort to avoid them—if you even want to.

 

Regardless, I think it’s fascinating to learn more about how we think and make decisions every day, so let’s take a look at some of these thinking habits we didn’t know we had.

 

1. We surround ourselves with information that matches our beliefs

We tend to like people who think like us. If we agree with someone’s beliefs, we’re more likely to be friends with them. While this makes sense, it means that we subconsciously begin to ignore or dismiss anything that threatens our world views, since we surround ourselves with people and information that confirm what we already think.

 

This is called confirmation bias. If you’ve ever heard of the frequency illusion, this is very similar. The frequency illusion occurs when you buy a new car, and suddenly you see the same car everywhere. Or when a pregnant woman suddenly notices other pregnant women all over the place. It’s a passive experience, where our brains seek out information that’s related to us, but we believe there’s been an actual increase in the frequency of those occurrences.

 

Confirmation bias is a more active form of the same experience. It happens when we proactively seek out information that confirms our existing beliefs.

 

Not only do we do this with the information we take in, but we approach our memories this way, as well. In an experiment in 1979 at the University of Minnesota, participants read a story about a women called Jane who acted extroverted in some situations and introverted in others. When the participants returned a few days later, they were divided into two groups. One group was asked if Jane would be suited to a job as a librarian, the other group were asked about her having a job as a real-estate agent. The librarian group remembered Jane as being introverted and later said that she would not be suited to a real-estate job. The real-estate group did the exact opposite: they remembered Jane as extroverted, said she would be suited to a real-estate job and when they were later asked if she would make a good librarian, they said no.

 

In 2009, a study at Ohio State showed that we will spend 36 percent more time reading an essay if it aligns with our opinions. "Whenever your opinions or beliefs are so intertwined with your self-image you couldn’t pull them away without damaging your core concepts of self, you avoid situations which may cause harm to those beliefs." – David McRaney

 

This trailer for David McRaney’s book, You are Now Less Dumb, explains this concept really well with a story about how people used to think geese grew on trees (seriously), and how challenging our beliefs on a regular basis is the only way to avoid getting caught up in the confirmation bias.

 

2. We believe in the “swimmer’s body” illusion

 

This has to be one of my favorite thinking mistakes I came across. In Rolf Dobelli’s book, The Art of Thinking Clearly, he explains how our ideas about talent and extensive training are well off-track: "Professional swimmers don’t have perfect bodies because they train extensively. Rather, they are good swimmers because of their physiques. How their bodies are designed is a factor for selection and not the result of their activities."

 

The “swimmer’s body illusion” occurs when we confuse selection factors with results. Another good example is top performing universities: are they actually the best schools, or do they choose the best students, who do well regardless of the school’s influence?

 

What really jumped out at me when researching this section was this particular line from Dobelli’s book: "Without this illusion, half of advertising campaigns would not work."

 

It makes perfect sense, when you think about it. If we believed that we were predisposed to be good at certain things (or not), we wouldn’t buy into ad campaigns that promised to improve our skills in areas where it’s unlikely we’ll ever excel.

 

3. We worry about things we’ve already lost

 

No matter how much I pay attention to the sunk cost fallacy, I still naturally gravitate towards it.

 

The term sunk cost refers to any cost (not just monetary, but also time and effort) that has been paid already and cannot be recovered. So, a payment of time or money that’s gone forever, basically.

 

The reason we can’t ignore the cost, even though it’s already been paid, is that we wired to feel loss far more strongly than gain. Psychologist Daniel Kahneman explains this in his book, Thinking Fast and Slow: "Organisms that placed more urgency on avoiding threats than they did on maximizing opportunities were more likely to pass on their genes. So, over time, the prospect of losses has become a more powerful motivator on your behavior than the promise of gains. The sunk cost fallacy plays on this tendency of ours to emphasize loss over gain."

 

This research study is a great example of how it works: Hal Arkes and Catehrine Blumer created an experiment in 1985 which demonstrated your tendency to go fuzzy when sunk costs come along. They asked subjects to assume they had spent $100 on a ticket for a ski trip in Michigan, but soon after found a better ski trip in Wisconsin for $50 and bought a ticket for this trip too. They then asked the people in the study to imagine they learned the two trips overlapped and the tickets couldn’t be refunded or resold. Which one do you think they chose, the $100 good vacation, or the $50 great one?

Over half of the people in the study went with the more expensive trip. It may not have promised to be as fun, but the loss seemed greater.

 

So, just like the other mistakes I’ve explained in this post, the sunk cost fallacy leads us to miss or ignore the logical facts presented to us, and instead make irrational decisions based on our emotions—without even realizing we’re doing so:

 

The fallacy prevents you from realizing the best choice is to do whatever promises the better experience in the future, not which negates the feeling of loss in the past.

 

Being such a subconscious reaction, it’s hard to avoid this one. Our best bet is to try to separate the current facts we have from anything that happened in the past. For instance, if you buy a movie ticket only to realize the movie is terrible, you could either:

a) stay and watch the movie, to “get your money’s worth” since you’ve already paid for the ticket (sunk cost fallacy)

or
b) leave the cinema and use that time to do something you’ll actually enjoy.

The thing to remember is this: you can’t get that investment back. It’s gone.

 

Don’t let it cloud your judgement in whatever decision you’re making in this moment—let it remain in the past.

 

4. We incorrectly predict odds

 

Imagine you’re playing Heads or Tails with a friend. You flip a coin, over and over, each time guessing whether it will turn up heads or tails. You have a 50/50 chance of being right each time.

 

Now suppose you’ve flipped the coin five times already and it’s turned up heads every time. Surely, surely, the next one will be tails, right? The chances of it being tails must be higher now, right?

Well, no. The chances of tails turning up are 50/50. Every time. Even if you turned up heads the last twenty times. The odds don’t change.

 

The gambler’s fallacy is a glitch in our thinking—once again, we’re proven to be illogical creatures. The problem occurs when we place too much weight on past events, believing that they will have an effect on future outcomes (or, in the case of Heads or Tails, any weight, since past events make absolutely no difference to the odds).

 

Unfortunately, gambling addictions in particular are also affected by a similar mistake in thinking—the positive expectation bias. This is when we mistakenly think that eventually, our luck has to change for the better. Somehow, we find it impossible to accept bad results and give up—we often insist on keeping at it until we get positive results, regardless of what the odds of that happening actually are.

 

5. We rationalize purchases we don’t want

 

I’m as guilty of this as anyone. How many times have you gotten home after a shopping trip only to be less than satisfied with your purchase decisions and started rationalizing them to yourself? Maybe you didn’t really want it after all, or in hindsight you thought it was too expensive. Or maybe it didn’t do what you hoped, and was actually useless to you.

 

Regardless, we’re pretty good at convincing ourselves that those flashy, useless, badly thought-out purchases are necessary after all. This is known as post-purchase rationalization or Buyer’s Stockholm Syndrome.

 

The reason we’re so good at this comes back to psychology: Social psychologists say it stems from the principle of commitment, our psychological desire to stay consistent and avoid a state of cognitive dissonance.

 

Cognitive dissonance is the discomfort we get when we’re trying to hold onto two competing ideas or theories. For instance, if we think of ourselves as being nice to strangers, but then we see someone fall over and don’t stop to help them, we would then have conflicting veiws about ourselves: we are nice to strangers, but we weren’t nice to the stranger who fell over. This creates so much discomfort that we have to change our thinking to match our actions—i.e. we start thinking of ourselves as someone who is not nice to strangers, since that’s what our actions proved.

 

So in the case of our impulse shopping trip, we would need to rationalize the purchases until we truly believe we needed to buy those things, so that our thoughts about ourselves line up with our actions (making the purchases).

The tricky thing in avoiding this mistake is that we generally act before we think, leaving us to rationalize our actions afterwards.

 

Being aware of this mistake can help us avoid it by predicting it before taking action—for instance, as we’re considering a purchase, we often know that we will have to rationalize it to ourselves later. If we can recognize this, perhaps we can avoid it. It’s not an easy one to tackle, though!

 

6. We make decisions based on the anchoring effect

 

Dan Ariely is a behavioural economist who gave one of my favorite TED talks ever about the irrationality of the human brain when it comes to making decisions.

 

He illustrates this particular mistake in our thinking superbly, with multiple examples. The anchoring effect essentially works like this: rather than making a decision based on pure value for investment (time, money, etc.), we factor in comparative value—that is, how much value an option offers when compared to another option.

 

Let’s look at some examples from Dan, to illustrate this effect in practice:

One example is an experiment that Dan conducted using two kinds of chocolates for sale in a booth: Hershey’s Kisses and Lindt Truffles. The Kisses were one penny each, while the Truffles were fifteen cents each. Considering the quality differences between the two kinds of chocolates and the normal prices of both items, the Truffles were a great deal, and the majority of visitors to the booth chose the Truffles.

 

For the next stage of his experiment, Dan offered the same two choices, but lowered the prices by one cent each. So now the Kisses were free, and the Truffles cost fourteen cents each. Of course, the Truffles are even more of a bargain now, but since the Kisses were free, most people chose those instead.

 

Your loss aversion system is always vigilant, waiting on standby to keep you from giving up more than you can afford to spare, so you calculate the balance between cost and reward whenever possible. – You Are Not So Smart

Another example Dan offers in his TED talk is when consumers are given holiday options to choose between. When given a choice of a trip to Rome, all expenses paid, or a similar trip to Paris, the decision is quite hard. Each city comes with its own food, culture and travel experiences that the consumer must choose between.

 

When a third option is added, however, such as the same Rome trip, but without coffee included in the morning, things change. When the consumer sees that they have to pay 2,50 euros for coffee in the third trip option, not only does the original Rome trip suddenly seem superior out of these two, it also seems superior to the Paris trip. Even though they probably hadn’t even considered whether coffee was included or not before the third option was added.

 

Here’s an even better example from another of Dan’s experiments:

Dan found this real ad for subscriptions to The Economist, and used it to see how a seemingly useless choice (like Rome without coffee) affects our decisions.

 

To begin with, there were three choices: subscribe to The Economist web version for $59, the print version for $125, or subscribe to both the print and web versions for $125. It’s pretty clear what the useless option is here. When Dan gave this form to 100 MIT students and asked them which option they would choose, 84% chose the combo deal for $125. 16% chose the cheaper, web-only option, and nobody chose the print-only option for $125.

 

Next, Dan removed the ‘useless’ print-only option which nobody wanted and tried the experiment with another group of 100 MIT students. This time, the majority chose the cheaper, web-only version, and the minority chose the combo deal. So even though nobody wanted the bad-value $125 print-only option, it wasn’t actually useless—in fact, it actually informed the decisions people made between the two other options by making the combo deal seem more valuable in relation.

 

This mistake is called the anchoring effect, because we tend to focus on a particular value and compare it to our other options, seeing the difference between values rather than the value of each option itself.

 

Eliminating the ‘useless’ options ourselves as we make decisions can help us choose more wisely. On the other hand, Dan says that a big part of the problem comes from simply not knowing our own preferences very well, so perhaps that’s the area we should focus on more, instead.

 

7. We believe our memories more than facts

 

Our memories are highly fallible and plastic. And yet, we tend to subconsciously favor them over objective facts. The availability heuristic is a good example of this. It works like this: Suppose you read a page of text and then you’re asked whether the page includes more words that end in “ing” or more words with “n” as the second-last letter. Obviously, it would be impossible for there to be more “ing” words than words with “n” as their penultimate letter (it took me a while to get that—read over the sentence again, carefully, if you’re not sure why that is).However, words ending in “ing” are easier to recall than words like hand, end, or and, which have “n” as their second-last letter, so we would naturally answer that there are more “ing” words.

 

What’s happening here is that we are basing our answer of probability (i.e. whether it’s probable that there are more “ing” words on the page) on how available relevant examples are (i.e. how easily we can recall them). Our troubles in recalling words with “n” as the second last letter make us think those words don’t occur very often, and we subconsciously ignore the obvious facts in front of us.

 

Although the availability heuristic is a natural process in how we think, two Chicago scholars have explained how wrong it can be:

 

Yet reliable statistical evidence will outperform the availability heuristic every time.

The lesson here? Whenever possible, look at the facts. Examine the data. Don’t base a factual decision on your gut instinct without at least exploring the data objectively first.

 

8. We pay more attention to stereotypes than we think

 

The funny thing about lots of these thinking mistakes is that they’re so ingrained, I had to think long and hard about why they’re mistakes at all! This one is a good example—it took me a while to understand how illogical this pattern of thinking is.

It’s another one that explains how easily we ignore actual facts:

 

The human mind is so wedded to stereotypes and so distracted by vivid descriptions that it will seize upon them, even when they defy logic, rather than upon truly relevant facts.

Here’s an example to illustrate the mistake, from researchers Daniel Kahneman and Amos Tversky:

In 1983 Kahneman and Tversky tested how illogical human thinking is by describing the following imaginary person: Linda is thirty-one years old, single, outspoken, and very bright. She majored in philosophy. As a student, she was deeply concerned with issues of discrimination and social justice, and also participated in antinuclear demonstrations.

 

The researchers asked people to read this description, and then asked them to answer this question: Which alternative is more probable?

 

1. Linda is a bank teller.

2. Linda is a bank teller and is active in the feminist movement.

 

Here’s where it can get a bit tricky to understand (at least, it did for me!)—If answer #2 is true, #1 is also true. This means that #2 cannot be the answer to the question of probability.

 

Unfortunately, few of us realize this, because we’re so overcome by the more detailed description of #2. Plus, as the earlier quote pointed out, stereotypes are so deeply ingrained in our minds that subconsciously apply them to others.

 

Roughly 85% of people chose option #2 as the answer.

 

Again, we see here how irrational and illogical we can be, even when the facts are seemingly obvious.

 

I love this quote from researcher Daniel Kahneman on the differences between economics and psychology: I was astonished. My economic colleagues worked in the building next door, but I had not appreciated the profound difference between our intellectual worlds. To a psychologist, it is self-evident that people are neither fully rational nor completely selfish, and that their tastes are anything but stable.

 

Clearly, it’s normal for us to be irrational and to think illogically, even though we rarely realize we’re doing it. Still, being aware of the pitfalls we often fall into when making decisions can help us to at least recognize them, if not avoid them.


Via Jim Manske
more...
Troy Crayton's curator insight, October 4, 2013 3:00 PM

Thank you for making us "aware" of this article, Duane....

donhornsby's curator insight, October 7, 2013 9:52 AM

(From the article): Clearly, it’s normal for us to be irrational and to think illogically, especially when language acts as a limitation to how we think, even though we rarely realize we’re doing it. Still, being aware of the pitfalls we often fall into when making decisions can help us to at least recognize them, if not avoid them.

Have you come across any other interesting mistakes we make in the way we think?

Lawrence Lanoff's curator insight, December 30, 2013 12:18 AM

This article is dense, but profound. Worth chomping on if you have some time. 

Bounded Rationality and Beyond
News on the effects of bounded rationality in economics and business, relationships and politics
Your new post is loading...
Your new post is loading...
Scooped by Alessandro Cerboni
Scoop.it!

Law and Neuroscience by Owen D. Jones, Matthew R. Ginther :: SSRN

Law and Neuroscience by Owen D. Jones, Matthew R. Ginther :: SSRN | Bounded Rationality and Beyond | Scoop.it

Abstract: This encyclopedia entry discusses how the intersection of perennial legal questions and new neuroscientific advances has fueled the emergence of a new field: Law & Neuroscience. It provides an overview of issues, discussing both the promise and the limitations.

more...
No comment yet.
Scooped by Alessandro Cerboni
Scoop.it!

Brief introduction to cognitive psychology applied to investigation and forensics

by Paola Giannetakis 

Behavior is the result of complexes mental processes that take place within our brain and it is clear that for the most we are not aware of such processes taking place, this implies a series of important considerations. The effects of these processes may produce a concrete impact on decisional processes that can influence dramatically the proceedings especially in high demand tasks and in specific professions. For example, we tend to believe to have control over the way we perceive the reality, we tend to overestimate the capability of memorizations of information. I will try to explain briefly a series of processes to highlight the limitation of human brain. We store information in our memory, what is working memory? Working memory is a cognitive system that maintains and elaborates information; it processes simultaneously both the incoming information and the retrieval of information. According to Baddeley, the working memory manipulates the information through three components: the phonological loop, the central executive and the visuospatial sketchpad. The visuospatial sketchpad (VS) holds visual and spatial information, this means that for example, the VS retains the information of how a word is written and where is spatially located but also is the place in which are retained and manipulated visual images. According to Shepard and Mezler, their experiment of comparing objects demonstrates how the VS is involved in the process of visual imagery; they presented four objects and asked to subjects to indicate whether these objects were the same or different objects, the subjects recognized the objects as being the same but rotated, this answer occurred in few second and they used the mental rotation function that is a function located within the visuospatial sketchpad’s function. https://www.linkedin.com/pulse/brief-introduction-cognitive-psychology-applied-paola-giannetakis
more...
No comment yet.
Scooped by Alessandro Cerboni
Scoop.it!

Behavioural Economics and
Complex Decision-Making
Implications for the Australian Tax and Transfer System

Individuals are faced with an increasingly complex arra y of decisions in their day to day lives. Economic growth and deregulation has greatly increased the c hoices available to people in Australia, as in other comparable countries. For example, where 30 years ago households had access to a single type of telephone connected to a single network, there are now a plet hora of technologies, companies and pricing packages. Similarly with financial and investment products , the number of choices has increased massively. Households now have access to many different types of mortgage and a great range of different ways in which they can invest their savings. While this increase in the range and diversity of choices undoubtedly brings many benefits, it does require people to make ever more complex decisions. For huma n decision-makers, particularly those with limited knowledge and experience, this can be a difficult t ask. At the same time individuals are increasingly responsible for their own finances, for example as personal superannuation replaces company pensions. With increased choice comes increased risk of costly error. Ma ny people feel there are too many choices and they do not have the knowledge required to make many of the decisions which are expected of them (Fear 2008; ASIC 2009). As people’s financial circumstances have become more co mplex, so too have their interactions with the tax and transfer system. To some extent there is an inevitable arms race between financial innovation and tax complexity. As new financial instruments emerge, including many specifically designed to minimise tax, tax law must also evolve to deal with them; and as tax la w changes, the finance sector is quick to respond with innovative products and strategies. This has resulted in a complex and continually changing tax and transfer system which may not be well suited to the vagaries of human decision-making. http://taxreview.treasury.gov.au/content/html/commissioned_work/downloads/CSIRO_AFTS_Behavioural_economics_paper.pdf
more...
No comment yet.
Scooped by Alessandro Cerboni
Scoop.it!

L'importanza dell'etica per il futuro della tecnologia

L'importanza dell'etica per il futuro della tecnologia | Bounded Rationality and Beyond | Scoop.it
La tecnologia si sta evolvendo molto più velocemente del previsto, e l'unico modo per evitare che internet si trasformi in una fogna è affidarsi all'etica.
more...
No comment yet.
Scooped by Alessandro Cerboni
Scoop.it!

Cos'è e a cosa serve il marketing nutrizionale?

Cos'è e a cosa serve il marketing nutrizionale? | Bounded Rationality and Beyond | Scoop.it
Quanto influiscono le logiche di economia e marketing sul problema dell'obesità? Il marketing nutrizionale è in cerca di risposta.
more...
No comment yet.
Scooped by Alessandro Cerboni
Scoop.it!

Behavioral Rationality and Heterogeneous
Expectations in Complex Economic 

Recognizing that the economy is a complex system with boundedly rational interacting agents, the book presents a theory of behavioral rationality and heterogeneous expectations in complex economic systems and confronts the nonlinear dynamic models with empirical stylized facts and laboratory experiments. The complexity model- ing paradigm has been strongly advocated since the late 1980s by some economists and by multidisciplinary scientists from various fields, such as physics, computer science and biology. More recently the complexity view has also drawn the attention of policy makers, who are faced with complex phenomena, irregular fluctuations and sudden, unpredictable market transitions. The complexity tools – bifurcations, chaos, multiple equilibria – discussed in this book will help students, researchers and policy makers to build more realis- tic behavioral models with heterogeneous expectations to describe financial market movements and macroeconomic fluctuations, in order to better manage crises in a complex global economy
https://assets.cambridge.org/97811070/19294/frontmatter/9781107019294_frontmatter.pdf
more...
No comment yet.
Scooped by Alessandro Cerboni
Scoop.it!

Using Behavioral Economic Field Experiments at a Firm: The Context and Design of the Truckers and Turnover Project

The Truckers and Turnover Project is a statistical case study of a single large trucking firm and its driver employees. The cooperating firm operates in the largest segment of the for-hire trucking industry in the United States, the “full truckload” (TL) segment, in which approximately 800,000 peop
more...
No comment yet.
Scooped by Alessandro Cerboni
Scoop.it!

An Introduction to Behavioral Economics *

An Introduction to Behavioral Economics * | Bounded Rationality and Beyond | Scoop.it

Dr Alain Samson's Introduction to Behavioral Economics - Behavioral Science for Beginners

Behavioral economics (BE) uses psychological experimentation to develop theories about human decision making and has identified a range of biases as a result of the way people think and feel. BE is trying to change the way economists think about people’s perceptions of value and expressed preferences. According to BE, people are not always self-interested, benefits maximizing, and costs minimizing individuals with stable preferences—our thinking is subject to insufficient knowledge, feedback, and processing capability, which often involves uncertainty and is affected by the context in which we make decisions. Most of our choices are not the result of careful deliberation. We are influenced by readily available information in memory, automatically generated affect, and salient information in the environment. We also live in the moment, in that we tend to resist change, are poor predictors of future behavior, subject to distorted memory, and affected by physiological and emotional states. Finally, we are social animals with social preferences, such as those expressed in trust, reciprocity and fairness; we are susceptible to social norms and a need for self-consistency. Interdisciplinary Context The field of BE is situated in a larger landscape of social and behavioral sciences, including cognitive and social psychology, and developments in the domain of neuroscience have opened up promising avenues for BE informed by better understanding of the human brain (Camerer, Loewenstein, & Prelec, 2005). It has been argued that BE would benefit from greater connections with other behavioral sciences, such as anthropology, which may be particularly important for domains that incorporate human interaction, especially behavioral game theory (Gintis, 2009). In a related vein, psychologists interested in the evolutionary origins of phenomena studied by behavioral economists have investigated behavioral biases in monkeys (Lakshminarayanan, Chen, & Santos, 2011). Some evolutionary psychologists have challenged assumptions about the rationality that underlies BE, in that seemingly ‘irrational’ judgments and decisions may have been functionally adaptive in our ancestral environment. The use of heuristic shortcuts, for example, is an efficient means for humans to make use of limited knowledge and processing capabilities. According to Herbert Simon, people tend to make decisions by satisficing (a combination of sufficing and satisfying) rather than optimizing (Gigerenzer & Goldstein, 1996), where decisions are often simply good enough in light of the costs and constraints involved. Evolutionary perspectives have also been applied to decision framing, showing that framing effects in a classic ‘lives lost’ versus ‘lives saved’ risky decision problem can change with the number of lives at stake. An “irrational” risk preference reversal effect is present when 600 or 6000 are involved, but it disappears when the number is reduced to 6 or 60. The evolutionary view holds that our thinking patterns evolved in hunter-gatherer environments that involved small groups (Rode & Wang, 2000).

more...
No comment yet.
Scooped by Alessandro Cerboni
Scoop.it!

Out of the Frying Pan into the Fire: Behavioral Reactions to Terrorist Attacks by Gerd Gigerenzer :: SSRN

Out of the Frying Pan into the Fire: Behavioral Reactions to Terrorist Attacks by Gerd Gigerenzer :: SSRN | Bounded Rationality and Beyond | Scoop.it

Abstract: A low-probability, high-damage event in which many people are killed at one point of time is called a dread risk. Dread risks can cause direct damage and, in addition, indirect damage mediated though the minds of citizens. I analyze the behavioral reactions of Americans to the terrorist attacks on September 11, 2001, and provide evidence for the dread hypothesis: (i) Americans reduced their air travel after the attack; (ii) for a period of one year following the attacks, interstate highway travel increased, suggesting that a proportion of those who did not fly instead drove to their destination; and (iii) for the same period, in each month the number of fatal highway crashes exceeded the base line of the previous years. An estimated 1,500 Americans died on the road in the attempt to avoid the fate of the passengers who were killed in the four fatal flights.

more...
No comment yet.
Scooped by Alessandro Cerboni
Scoop.it!

Economic Theory as Ideology

Economic Theory as Ideology | Bounded Rationality and Beyond | Scoop.it

Ideology and Science are diametrically opposed to each other. An ideology is a set of beliefs that is maintained even in face of strong empirical evidence to the contrary. In sharp contrast, scientific theories are judged primarily according to their ability to explain the empirical evidence. Theories which conflict with observations are rejected. This does not mean that ideology is necessarily wrong or bad – we must maintain our belief in justice, morality, honesty, trust, integrity without any empirical evidence; indeed, even when strong empirical evidence suggests that these beliefs will not bring us popularity or personal benefits. However, ideological beliefs in wrong ideas can blind us to the facts and prevent learning which is essential to progress. Nobel Laureate Joseph Stiglitz remarked that modern Economics represents the triumph of ideology over science. This essay explains the reasons for his remarks..

more...
No comment yet.
Scooped by Alessandro Cerboni
Scoop.it!

Probabilistic Recognition Heuristic by Martin Egozcue, Luis Fuentes García, Konstantinos V. Katsikopoulos, Michael Smithson :: SSRN

Probabilistic Recognition Heuristic by Martin Egozcue, Luis Fuentes García, Konstantinos V. Katsikopoulos, Michael Smithson :: SSRN | Bounded Rationality and Beyond | Scoop.it

Abstract: According to the recognition heuristic, people infer that an object they recognize has a higher value on a criterion of interest than an object they do not recognize. This model has been analyzed and conditions for the less-is-more effect- where recognizing fewer objects increases inferential accuracy have been derived. We extend previous studies by modelling this heuristic including the probabilistic recognition of objects and provide a number of results: First, we derive closed-form expressions for the parameters of the original model, in terms of the distributions of recognition and other cues over the objects. Second, we use the expressions to analyze the less-is-more effect. Third, we assume that the vectors of objects is random and use the expressions to calculate and compare the expected accuracy probability of success and derive the conditions under which the model equal or surpass the accuracy of random inference. Our results are general and can thus be linked to any model of recognition-based inference.

more...
No comment yet.
Scooped by Alessandro Cerboni
Scoop.it!

Taking Uncertainty Seriously: Simplicity versus Complexity in Financial Regulation by David Aikman, Mirta Galesic, Gerd Gigerenzer, Sujit Kapadia, Konstantinos V. Katsikopoulos, Amit Kothiyal, Emma...

Taking Uncertainty Seriously: Simplicity versus Complexity in Financial Regulation by David Aikman, Mirta Galesic, Gerd Gigerenzer, Sujit Kapadia, Konstantinos V. Katsikopoulos, Amit Kothiyal, Emma... | Bounded Rationality and Beyond | Scoop.it

Abstract: Distinguishing between risk and uncertainty, this paper draws on the psychological literature on heuristics to consider whether and when simpler approaches may outperform more complex methods for modelling and regulating the financial system. We find that: (i) simple methods can sometimes dominate more complex modelling approaches for calculating banks’ capital requirements, especially if limited data are available for estimating models or the underlying risks are characterised by fat-tailed distributions; (ii) simple indicators often outperformed more complex metrics in predicting individual bank failure during the global financial crisis; and (iii) when combining information from different indicators to predict bank failure, ‘fast-and-frugal’ decision trees can perform comparably to standard, but more information-intensive, regression techniques, while being simpler and easier to communicate. 

more...
No comment yet.
Scooped by Alessandro Cerboni
Scoop.it!

Nudges That Fail by Cass R. Sunstein :: SSRN

Nudges That Fail by Cass R. Sunstein :: SSRN | Bounded Rationality and Beyond | Scoop.it

Abstract: Why are some nudges ineffective? Focusing primarily on default rules, this essay emphasizes two reasons. The first involves strong antecedent preferences on the part of choosers. The second involves successful “counternudges,” which persuade people to choose in a way that confounds the efforts of choice architects. Nudges might also be ineffective for five other reasons. (1) Some nudges produce confusion. (2) Some nudges have only short-term effects. (3) Some nudges produce “reactance” (though this appears to be rare) (4) Some nudges are based on an inaccurate (though initially plausible) understanding on the part of choice architects of what kinds of choice architecture will move people in particular contexts. (5) Some nudges produce compensating behavior, resulting in no net effect. When a nudge turns out to be ineffective, choice architects have three potential responses: (1) Do nothing; (2) nudge better (or different); and (3) fortify the effects of the nudge, perhaps through counter-counternudges, perhaps through incentives, mandates, or bans.

more...
No comment yet.
Scooped by Alessandro Cerboni
Scoop.it!

Neuroscience and the Law: Don’t Rush In

Neuroscience and the Law: Don’t Rush In | Bounded Rationality and Beyond | Scoop.it
As you sit reading this, you probably experience an internal voice, unheard by any outsider, that verbally repeats the words you see on the page. That voice (which, in your case, speaks perfect English) is part of what we call your conscious mind. And the physical organ that causes what you see on the page …
more...
No comment yet.
Scooped by Alessandro Cerboni
Scoop.it!

Quanto è libero il libero arbitrio? - Il Post

Quanto è libero il libero arbitrio? - Il Post | Bounded Rationality and Beyond | Scoop.it

L'Atlantic ha ripreso un esteso dibattito in corso da decenni tra neuroscienziati e filosofi: esiste un "libero arbitrio", o le nostre scelte sono determinate da fattori genetici e ambientali?

Un giorno di ottobre del 2005 il neuroscienziato statunitense James Fallon, docente di psichiatria e neurobiologia alla School of Medicine dell’Università della California (UCI), stava osservando una serie di scansioni del cervello di alcuni pazienti ottenute mediante PET (tomografia a emissioni di positroni, un esame molto usato in neurologia e nella diagnostica oncologica). Fallon stava lavorando a uno studio il cui obiettivo era quello di rintracciare eventuali tratti anatomici comuni o particolari alterazioni nel cervello di un gruppo di assassini seriali con comprovate tendenze psicopatiche. Tra le numerose immagini diagnostiche sparse sulla scrivania, per altre ricerche a cui stava lavorando, Fallon aveva anche le scansioni del suo cervello e di quello dei suoi familiari. In una di quelle immagini notò evidenti caratteristiche comuni alle scansioni del cervello di molti assassini che stava studiando: una ridottissima attività cerebrale in alcune aree del lobo frontale e temporale, aree che numerosi studi di neuroscienze associano all’empatia, all’autocontrollo e all’inibizione dell’impulsività. Considerando che si trattava della sua famiglia, Fallon violò il metodo di lavoro “in cieco” e scoprì subito l’etichetta che nascondeva il codice identificativo della persona a cui apparteneva quella scansione: il cervello era il suo. Non solo: cercando informazioni sulla propria storia familiare, Fallon scoprì di essere un lontano discendente di Lizzie Borden – protagonista di un noto e controverso processo per parricidio nel 1892 – e di avere sette assassini noti tra i suoi antenati da parte di padre. «Questo creerà qualche problema alla prossima festa che diamo», disse a sua moglie revisionando i dati della ricerca.

more...
No comment yet.
Scooped by Alessandro Cerboni
Scoop.it!

Non solo tecnologia… complessità e imprevedibilità dei sistemi organizzativi

Non solo tecnologia… complessità e imprevedibilità dei sistemi organizzativi | Bounded Rationality and Beyond | Scoop.it
L’unica conoscenza che valga è quella che si alimenta di incertezza, e il solo pensiero che vive è quello che si mantiene alla temperatura della propria distruzione 
Quando si separa la mente dalla struttura in cui è immanente – come un rapporto umano, la società umana o l’ecosistema – si commette, io credo, un errore fondamentale, di cui a lungo andare sicuramente si soffrirà Gregory Bateson Rispetto alle leggi scientifiche, la realtà si è dimostrata più ricca e stravagante di quanto potessero prevedere coloro che avevano fatto di queste leggi il mezzo determinante della esplorazione del mondo Ilya Prigogine Il nuovo ambiente plasmato dalla tecnologia elettrica è un ambiente cannibalistico che divora le persone. Per sopravvivere, bisogna studiare le abitudini dei cannibali Marshall McLuhan
Sistemi e organizzazioni complesse devono confrontarsi e interagire con ecosistemi sempre più caotici e disordinati ma, allo stesso tempo, sempre più interdipendenti e interconnessi, che attraversano un’ulteriore fase (critica) di evoluzione – non lineare – per differenziazione segnata dall’avvento dell’economia interconnessa dell’immateriale (Dominici). Un tipo di economia e di contesto storico-sociale – che ho definito Società Ipercomplessa (2003-05) – che, al di là delle resistenze, soprattutto di tipo culturale, stanno costringendo sempre più i sistemi organizzativi a configurare nuovi modelli e strategie uniformandosi, almeno in termini di etichetta, ai principi della trasparenza e dell’accesso e, più in generale, dell’openness e della condivisione della conoscenza. In tal senso, la comunicazione (non soltanto quella organizzativa), da “semplice” strumento di manipolazione, persuasione (più o meno occulta e responsabile), promozione, reputazione, consenso e costruzione di una visibilità (paradossalmente) fine a sé stessa, è destinata progressivamente a diventare e, soprattutto, ad essere riconosciuta come vero e proprio vettore di trasparenza, accesso, servizio, condivisione, riduzione della complessità. In altre parole, fattore strategico di efficienza e non soltanto per l’immagine e/o la reputazione, il consenso o la vendita.
more...
No comment yet.
Scooped by Alessandro Cerboni
Scoop.it!

5 tecniche di neuromarketing che fanno leva sui clienti

5 tecniche di neuromarketing che fanno leva sui clienti | Bounded Rationality and Beyond | Scoop.it
Il Neuromarketing è una branca delle neuroeconomie e indica una recente disciplina volta all’individuazione dei canali legati ai processi decisionali d’acquisto ....
more...
No comment yet.
Scooped by Alessandro Cerboni
Scoop.it!

Il priming: unione tra psicologia e pubblicità

Il priming: unione tra psicologia e pubblicità | Bounded Rationality and Beyond | Scoop.it
Il priming è un esempio di psicologia applicata al marketing. Consapevole o involontario, influenza il comportamento del consumatore.
more...
No comment yet.
Scooped by Alessandro Cerboni
Scoop.it!

Rethinking Marketing and Customers: Lessons from Behavioral Economics

The relatively new field of behavioral economics incorporates a range of disciplines, from cognitive science to marketing, in order to paint a more nuanced and whole portrait of human behavior in the marketplace. One of its key revelations has been that consumers are neither fully rational nor fully aware of what drives their own economic decision making. But turning the tightly controlled and sometimes narrow findings of academia into practicable solutions is not always easy. So how does behavioral economics work (or not work) under real-world conditions?
more...
No comment yet.
Scooped by Alessandro Cerboni
Scoop.it!

Using Behavioral Science Insights to Make Government More Effective, Simpler, and More People-Friendly

Using Behavioral Science Insights to Make Government More Effective, Simpler, and More People-Friendly | Bounded Rationality and Beyond | Scoop.it
This month marks one full year since the launch of the first-ever Social and Behavioral Sciences Team (SBST), which was created in response to the President’s call to make government programs more effective and efficient. SBST had a successful first year, launching a wide variety of evidence-based pilots. To mark the one-year anniversary of SBST, the team met with President Obama last Friday.
more...
No comment yet.
Scooped by Alessandro Cerboni
Scoop.it!

Old economic models couldn't predict the recession. Time for new ones.

Old economic models couldn't predict the recession. Time for new ones. | Bounded Rationality and Beyond | Scoop.it

Part of a continuing series about complexity science by the Santa Fe Institute and The Christian Science Monitor, generously supported by Arizona State University. The 2008 financial crisis – which cost the United States economy between $6 trillion to $14 trillion and the world economy a great deal more – shook the world of finance to its foundation. It hit the most vulnerable particularly hard, as unemployment in the US doubled from 5 to 10 percent, and in several countries in southern Europe, 1 in 4 people who want a job are still unable to find work – roughly the unemployment rate the US experienced during the Great Depression. Recommended: Foreign companies that beat Silicon Valley at its own game It’s now old hat to point out that very few experts saw it coming. We shouldn’t be too hard on them, though. Surprisingly, the US investment in developing a better theoretical understanding of the economy is very small – around $50 million in annual funding from the National Science Foundation – or just 0.0005 percent of a $10 trillion crisis. Foreign companies that beat Silicon Valley at its own game PHOTOS OF THE DAY Photos of the day 07/20

more...
William Smith's curator insight, July 22, 4:56 PM
Surprising that most economic models were not already this sophisticated.
Scooped by Alessandro Cerboni
Scoop.it!

The Auditory Cortex of Hearing and Deaf People are Almost Identical

The Auditory Cortex of Hearing and Deaf People are Almost Identical | Bounded Rationality and Beyond | Scoop.it
Neuroscience News has recent neuroscience research articles, brain research news, neurology studies and neuroscience resources for neuroscientists, students, and science fans and is always free to join. Our neuroscience social network has science groups, discussion forums, free books, resources, science videos and more.
more...
No comment yet.
Scooped by Alessandro Cerboni
Scoop.it!

On the quality of emergence
in complex collective systems

On the quality of emergence in complex collective systems.
Abstract A number of elements towards a classification of the quality of emergence in emergent collective systems are provided. By using those elements, several classes of emergent systems are exemplified, ranging from simple aggregations of simple parts up to complex organizations of complex collective systems. In so doing, the factors likely to play a a significant role in the persistence of emergence and its opposite are highlighted. From this, new elements for discussion are identified also considering elements from the System of Leibniz.
more...
No comment yet.
Scooped by Alessandro Cerboni
Scoop.it!

Extending the Recognition Heuristic: A Three-State Model by Martin Egozcue, Luis Fuentes García, Konstantinos V. Katsikopoulos, Michael Smithson :: SSRN

Extending the Recognition Heuristic: A Three-State Model by Martin Egozcue, Luis Fuentes García, Konstantinos V. Katsikopoulos, Michael Smithson :: SSRN | Bounded Rationality and Beyond | Scoop.it

Abstract: According to the recognition heuristic, people infer that an object they recognize has a higher value on a criterion of interest than an object they do not recognize. This model has been analyzed mathematically and conditions for the less-is-more effect -- where recognizing fewer objects increases inferential accuracy -- have been derived. We propose an extension of the heuristic that incorporates the empirical finding that people recognize some objects for which they believe they have low criterion value. We call these recognized objects unsatisfying, in contrast to recognized-satisfying objects which the inference-maker believes to have a high criterion value. We analyze the model and provide a number of results: First, we derive closed-form expressions for the parameters of our model, as well as for the parameters of the original model, in terms of the distributions of recognition and other cues over the objects. Second, we use the expressions to analyze the less-is-more effect for both models. Third, we use the expressions to calculate and compare the accuracy of the two models and derive conditions under which the models equal or surpass the accuracy of random inference. Our results are general and can thus be linked to any model of recognition-based inference.

more...
No comment yet.
Scooped by Alessandro Cerboni
Scoop.it!

As-If Behavioral Economics: Neoclassical Economics in Disguise? by Nathan Berg, Gerd Gigerenzer :: SSRN

As-If Behavioral Economics: Neoclassical Economics in Disguise? by Nathan Berg, Gerd Gigerenzer :: SSRN | Bounded Rationality and Beyond | Scoop.it

Abstract: For a research program that counts improved empirical realism among its primary goals, it is surprising that behavioral economics appears indistinguishable from neoclassical economics in its reliance on “as-if” arguments. “As-if” arguments are frequently put forward in behavioral economics to justify “psychological” models that add new parameters to fit decision outcome data rather than specifying more realistic or empirically supported psychological processes that genuinely explain these data. Another striking similarity is that both behavioral and neoclassical research programs refer to a common set of axiomatic norms without subjecting them to empirical investigation. Notably missing is investigation of whether people who deviate from axiomatic rationality face economically significant losses. Despite producing prolific documentation of deviations from neoclassical norms, behavioral economics has produced almost no evidence that deviations are correlated with lower earnings, lower happiness, impaired health, inaccurate beliefs, or shorter lives. We argue for an alternative non-axiomatic approach to normative analysis focused on veridical descriptions of decision process and a matching principle – between behavioral strategies and the environments in which they are used – referred to as ecological rationality. To make behavioral economics, or psychology and economics, a more rigorously empirical science will require less effort spent extending “as-if” utility theory to account for biases and deviations, and substantially more careful observation of successful decision makers in their respective domains.

more...
No comment yet.