Archive for the ‘Cognitive biases’ Category

All of the info I’ve collected says I’m right … so there!

November 2, 2017

Dan Lovallo, a professor and decision-making researcher says, “Confirmation bias is probably the single biggest problem in business, because even the most sophisticated people get it wrong. People go out and they’re collecting the data, and they don’t realize they’re cooking the books.”

What’s this “confirmation bias” that Lovello is talking about?

No surprise, people tend to seek out information that supports their existing beliefs.

You know, liberals watch MSNBC, read the NY Times listen to BBC podcasts; conservatives watch FOX, read the WSJ and listen to Rush.

Behavioral psychologists call the he dynamic “confirmation bias”.

 

clip_image002

=====

In socio-politics, the confirmation bias tends to harden polarized positions. People just gather debate fodder rather than probing both sides of issues.

In the realm of decision making, confirmation bias has a dysfunctional effect: it leads to bad decisions.

(more…)

Yum, those burgers looks good …

October 27, 2017

Adding visuals to menus (and reports) creates interest and boosts credibility.

+++++++

Studies have shown that adding  icons and photos to restaurant menus increase sales up to 30% for the featured items.

The visuals draw attention to the items … if done well, they stimulate diners’ senses.

OK, we’ve all be menu-enticed … that’s not news.

image

=======

 

But, did you know that simply adding a visual – a graph or chart  or formula — to a report can boost the credibility of a conclusion by 50% or more?

(more…)

All of the info I’ve collected says I’m right … so there!

April 21, 2017

Dan Lovallo, a professor and decision-making researcher says, “Confirmation bias is probably the single biggest problem in business, because even the most sophisticated people get it wrong. People go out and they’re collecting the data, and they don’t realize they’re cooking the books.”

What’s this “confirmation bias” that Lovello is talking about?

No surprise, people tend to seek out information that supports their existing beliefs.

You know, liberals watch MSNBC, read the NY Times listen to BBC podcasts; conservatives watch FOX, read the WSJ and listen to Rush.

Behavioral psychologists call the he dynamic “confirmation bias”.

 

clip_image002

=====

In socio-politics, the confirmation bias tends to harden polarized positions. People just gather debate fodder rather than probing both sides of issues.

In the realm of decision making, confirmation bias has a dysfunctional effect: it leads to bad decisions.

(more…)

Gains, losses, the endowment effect … and ObamaCare

March 3, 2017

Here’s why repeal & replace is so challenging …

======

Behavioral theorists have long observed that most people are risk adverse and, due in part to an “endowment effect”, they “value” losses greater than gains.

Endowment Effect: People tend to ascribe a higher value to things that they already own than to comparable things that they don’t own. For example, a car-seller might think his sleek machine is “worth” $10,000 even though credible appraisers say it’s worth $7,500. Sometimes the difference is due to information asymmetry (e.g. the owner knows more about the car’s fine points), but usually it’s just a cognitive bias – the Endowment Effect.

The chart below illustrates the gains & losses concept.

  • Note that the “value line” is steeper on the losses side of the chart than on the gains side.
  • L & G are equivalently sized changes from a current position.
  • The gain (G) generates an increase in value equal to X.
  • The loss (L) generates a decrease in value that is generally found to be 2 to 3 times an equivalently sized gain

clip_image001

=====

For example, would you take any of these coin flip gambles?

  1. Heads: win $100; Tails: lose $100
  2. Heads: win $150; Tails: lose $100
  3. Heads: win $200; Tails: lose $100
  4. Heads: win $300; Tails: lose $100

Most people pass on #1 and #2, but would hop on #3 and #4.

OK, now let’s show how all of this relates to ObamaCare.

(more…)

Where do you get your news?

February 20, 2017

Your answer says a lot about you.

=====

Before you look at the chart below, jot down the  channels/shows or web pages that you trust as your primary sources for news.

No cheating.

Done?

=====

OK, now check where your news sources fall along this ideological continuum crafted by Pew Research.

confirmation bias - media ideology
Your news sources align with your political ideology, right?

It’s a psychological dynamic called “confirmation bias” … soliciting and internalizing information that is consistent with one’s current beliefs.

Said differently, confirmation bias is a natural stress-reduction tendency to avoid or resist any information that is contrary to or inconsistent with one’s current thinking.

One of the major solidifiers of our current political polarization is the “echo chamber effect” … we all tend to consult sources and hang with people who share, reinforce and exaggerate our ideological leanings.

So what to do?

(more…)

Where do you get your news?

December 21, 2016

Your answer says a lot about you.

=====

Before you look at the chart below, jot down the 3 or 4 web pages or channels/shows that you trust as your primary sources for news.

No cheating.

Done?

=====

OK, now check where your news sources fall along this ideological continuum crafted by Pew Research.

confirmation bias - media ideology
Your news sources align with your political ideology, right?

It’s a psychological dynamic called “confirmation bias” … soliciting and internalizing information that is consistent with one’s current beliefs.

Said differently, confirmation bias is a natural stress-reduction tendency to avoid or resist any information that is contrary to or inconsistent with one’s current thinking.

One of the major solidifiers of our current political polarization is the “echo chamber effect” … we all tend to consult sources and hang with people who share, reinforce and exaggerate our ideological leanings.

So what to do?

(more…)

Yum, those burgers looks good …

December 9, 2016

Adding visuals to menus (and reports) creates interest and boosts credibility.

+++++++

Studies have shown that adding  icons and photos to restaurant menus increase sales up to 30% for the featured items.

The visuals draw attention to the items … if done well, they stimulate diners’ senses.

OK, we’ve all be menu-enticed … that’s not news.

image

=======

 

But, did you know that simply adding a visual – a graph or chart  or formula — to a report can boost the credibility of a conclusion by 50% or more?

(more…)

Biases: The “halo effect” … rock on, sister!

September 20, 2016

Since Alicia Keys debuted as a coach on The Voice last night, I have a semi-legitimate excuse for reprising one of my all-time favorite posts … topic is a cognitive bias called the “halo effect”.

=======

I’ll explain the picture later, but first, the back story.

A couple of interesting dots got connected last week.

image

First, I started watching The Voice.

I liked the talent and the bantering among the coaches, but wondered why they used the turning chairs gimmick.  You know, judges can’t see the the performers, they can just hear them.

Became apparent when Usher turned his chair and was surprised to see that the high-pitched soul singer was a big white guy.

Hmmm.

=====

Second, for the course I’m currently teaching, I’ve been reading a book called The Art of Thinking Clearly — a series of short essays on cognitive biases – those sneaky psychological effects that impair our decision-making.

(more…)

Is ‘Hermine’ a male or a female name? So what?

September 7, 2016

Last weekend’s Florida hurricane, prompts the question …

Answer: Based on popular usage, it is 30.812 times more common for Hermine to be a girl’s name than a boy’s name. Source

What’s the ‘so what’?

Well, some names are deadlier than others.

Female-named hurricanes cause “significantly more deaths”

=======

Researchers analyzed over six decades of death rates from U.S. hurricanes and concluded that a severe hurricane with a female name is likely to have a death toll triple that of an equally severe hurricane with a male name.

Say, what?

clip_image002

No, it’s not gender bias … it’s a cognitive bias induced by “Incidental stimuli”.

(more…)

Buy now (at list price) or you may regret it … say, what?

June 14, 2016

There are two basic retailer pricing strategies:

· Everyday Low Prices. Think Walmart with relatively constant prices and few sales

· High-Low Prices. Think Kohl’s with very high “regular” prices and frequent deep discounts.

image

Which strategy works better?

(more…)

Name game: Some names are deadlier than others

May 31, 2016

Female-named hurricanes cause “significantly more deaths”

=======

Researchers analyzed over six decades of death rates from U.S. hurricanes and concluded that a severe hurricane with a female name is likely to have a death toll triple that of an equally severe hurricane with a male name.

Say, what?

clip_image002

No, it’s not gender bias … it’s a cognitive bias induced by “Incidental stimuli”.

(more…)

Yum, those burgers looks good …

May 25, 2016

Adding visuals to menus (and reports) creates interest and boosts credibility.

+++++++

Studies have shown that adding  icons and photos to restaurant menus increase sales up to 30% for the featured items.

The visuals draw attention to the items … if done well, they stimulate diners’ senses.

OK, we’ve all be menu-enticed … that’s not news.

image

=======

 

But, did you know that simply adding a visual – a graph or chart  or formula — to a report can boost the credibility of a conclusion by 50% or more?

(more…)

Star gazing … how reliable are online user ratings?

May 20, 2016

When we’re buying something on Amazon, we all glance at the user ratings, right?

5-stars, it’s a keeper … 1 star it’s a bummer.

Real reviews from real users.

What could be more accurate?

clip_image002

=======

Some researchers tried to answer that question.

Since Consumer Reports has been in the quality testing business for decades with a reputation for rigor, objectivity and impartiality … So, to test the reliability of user ratings, the researchers took the Consumer Reports’ scores for 1,272 products and compared them to more than 300,000 Amazon ratings for the same items.

Their findings may surprise you …

(more…)

Quick Test: The “majority illusion” …

April 22, 2016

Adapted from the Washington Post WonkBlog:

The below chart represents a network of the entire population of a fictional and very small town.

Each circle represents a person. Two people who know each other are connected by a line. People who are not connected by a line have never met.

The day’s political issue: whether baseball caps are fashionable. Each circle is colored to indicate that person’s stance on the issue. Blue circles think caps are fashionable. Orange circles think that caps are not fashionable. (On this issue, everyone has an opinion.)

The town will be voting on whether to officially consider baseball caps fashionable.

A polling firm recently asked whether each person thought that the town would vote to deem baseball caps fashionable.

Assume each person polled based their prediction solely on how the majority of people they know felt about baseball caps (excluding his or her own view).

Did the polling firm find the measure was expected to pass or fail?

(more…)

Decision Making: Beware the villains …

April 21, 2016

According to Chip & Dan Heath in Rotman Management article “The 4 Villains of Decision Making” …

“Research in Psychology over the last 40 years has identified a broad set of biases in our thinking that doom our decision making. If we aspire to make better choices, we must learn how these biases work and how to fight them.”

 

Confused man

 

According to the Heath Brothers – academics & popular authors – there are 4 decision making villains that have to be confronted

(more…)

All of the info I’ve collected says I’m right … so there!

April 20, 2016

Dan Lovallo, a professor and decision-making researcher says, “Confirmation bias is probably the single biggest problem in business, because even the most sophisticated people get it wrong. People go out and they’re collecting the data, and they don’t realize they’re cooking the books.”

What’s this “confirmation bias” that Lovello is talking about?

No surprise, people tend to seek out information that supports their existing beliefs.

You know, liberals watch MSNBC, read the NY Times listen to BBC podcasts; conservatives watch FOX, read the WSJ and listen to Rush.

Behavioral psychologists call the he dynamic “confirmation bias”.

 

clip_image002

=====

In socio-politics, the confirmation bias tends to harden polarized positions. People just gather debate fodder rather than probing both sides of issues.

In the realm of decision making, confirmation bias has a dysfunctional effect: it leads to bad decisions.

(more…)

Do better looking students get better grades?

April 14, 2016

You bet they do …

image

======

Prof Robert Kaplan of San Diego State University conducted an experiment:

Faculty subjects were asked to grade an essay written by a student.

A photograph of the student was attached to the essay.

The grade given for the essay correlated strongly with a subjective attractiveness scale evaluated by other judges.

What is interesting is that all the subjects received the exact same essay, and the photograph attached to it was randomly assigned.

Bottom line: physical attractiveness causes graders to give essay writers better scores on their essays.

Here’s what’s going on …

(more…)

Base Rates: How often do Derby & Preakness winners nail the Triple Crown?

November 5, 2015

Two coinciding events …

In my Strategic Business Analytics course, we’re dealing with “base rates” — the likelihood of something occurring given prior results in relatively similar situations.

And,  a couple of weeks ago, Triple Crown winner American Pharoah won the Breeder’s Cup.

So, I thought it would be a good time to flashback to last May, when American Pharoah was heading into the Belmont as the odds-on favorite to win the Triple Crown … a case study in base rates.

=====
Originally posted May, 2014

On Saturday, American Pharoah will try to win the Belmont — capping off his Derby & Preakness wins to capture the oft-elusive Triple Crown.

Based on Triple Crown history, what are his chances?

The simple – but very deceiving answer is 35%.

31 horses have won both the Kentucky Derby & the Preakness …

11 of them have won the Belmont and the Triple Crown.

35% … about 1 out of 3.

That’s not bad, right?

image

Let’s slice the numbers a little finer …

(more…)

Quick Test: The “majority illusion” …

October 13, 2015

Adapted from the Washington Post WonkBlog:

The below chart represents a network of the entire population of a fictional and very small town.

Each circle represents a person. Two people who know each other are connected by a line. People who are not connected by a line have never met.

The day’s political issue: whether baseball caps are fashionable. Each circle is colored to indicate that person’s stance on the issue. Blue circles think caps are fashionable. Orange circles think that caps are not fashionable. (On this issue, everyone has an opinion.)

The town will be voting on whether to officially consider baseball caps fashionable.

A polling firm recently asked whether each person thought that the town would vote to deem baseball caps fashionable.

Assume each person polled based their prediction solely on how the majority of people they know felt about baseball caps (excluding his or her own view).

Did the polling firm find the measure was expected to pass or fail?

(more…)

Decision Making: Beware the villains …

October 8, 2015

According to Chip & Dan Heath in Rotman Management article “The 4 Villains of Decision Making” …

“Research in Psychology over the last 40 years has identified a broad set of biases in our thinking that doom our decision making. If we aspire to make better choices, we must learn how these biases work and how to fight them.”

 

Confused man

 

According to the Heath Brothers – academics & popular authors – there are 4 decision making villains that have to be confronted

(more…)

Biases: The “halo effect” … rock on, sister!

September 24, 2015

Two coinciding events this week: I’m prepping my fall course in business analytics — with some emphasis on decision biases — and, AGT is over (finally) and The Voice’s new season started.

So, it’s time to dust off one of my favorite posts …

======

I’ll explain the picture later, but first, the back story.

A couple of interesting dots got connected last week.

 

image

First, I started watching The Voice.

I liked the talent and the bantering among the coaches, but wondered why they used the turning chairs gimmick.  You know, judges can’t see the the performers, they can just hear them.

Became apparent when Usher turned his chair and was surprised to see that the high-pitched soul singer was a big white guy.

Hmmm.

=====

Second, for the course I’m currently teaching, I’ve been reading a book called The Art of Thinking Clearly — a series of short essays on cognitive biases – those sneaky psychological effects that impair our decision-making.

(more…)

Decision Making: Beware the villains …

July 3, 2015

According to Chip & Dan Heath in Rotman Management article “The 4 Villains of Decision Making” …

“Research in Psychology over the last 40 years has identified a broad set of biases in our thinking that doom our decision making. If we aspire to make better choices, we must learn how these biases work and how to fight them.”

 

Confused man

 

According to the Heath Brothers – academics & popular authors – there are 4 decision making villains that have to be confronted

(more…)

Dilemma: The case of the lost concert tickets …

July 2, 2015

 

A classic “framing” question from Kahneman’s Thinking Fast, Thinking Slow

Here’s the situation:

A woman has bought two $80 tickets to the theater.

When she arrives at the theater, she opens her wallet and discovers that the tickets are missing.

$80 tickets are still available at the box office.

Will she buy two more tickets to see the play?

 

clip_image002

 

Most (but, not all) survey respondents answer that the woman will go home without seeing the show.

Let’s try another situation …

(more…)

American Pharoah: Odds-on favorite, but scientific long-shot …

June 5, 2015

In prior posts we reported how history is against American Pharoah  — How often do Derby & Preakness winners nail the Triple Crown? — and how bettors like long-shots — Biases: The favorite-long shot bias … ».

Today we’ll wrap up Triple Crown Week, excerpting an interesting piece in Wired titled “Science says that American Pharoah won’t win the triple crown”

image

 

Here’s the essence of the scientific argument …

(more…)

Biases: The favorite-long shot bias …

June 5, 2015

In gambling and economics, there’s an observed phenomenon favorite-long shot bias.

image

Here’s how it works …

 

(more…)

How often do Derby & Preakness winners nail the Triple Crown?

June 4, 2015

On Saturday, American Pharoah will try to win the Belmont — capping off his Derby & Preakness wins to capture the oft-elusive Triple Crown.

Based on Triple Crown history, what are his chances?

The simple – but very deceiving answer is 35%.

31 horses have won both the Kentucky Derby & the Preakness …

11 of them have won the Belmont and the Triple Crown.

35% … about 1 out of 3.

That’s not bad, right?

image

Let’s slice the numbers a little finer …

(more…)

What are your chances of dying from ___ ?

May 26, 2015

OK, here’s a test for you  …

image

Rank the the following by the odds that somebody who is in the group or who is exposed to the risk is likely to die.

Make #1 the highest risk of dying in the next year; make #7 the lowest risk circumstance

  • For women giving birth
  • For anyone thirty-five to forty-four years old
  • From asbestos in schools
  • For anyone for any reason
  • From lightning
  • For police on the job
  • From airplane crashes

And the answer is …

(more…)

Do better looking students get better grades?

April 23, 2015

You bet they do …

image

======

Prof Robert Kaplan of San Diego State University conducted an experiment:

Faculty subjects were asked to grade an essay written by a student.

A photograph of the student was attached to the essay.

The grade given for the essay correlated strongly with a subjective attractiveness scale evaluated by other judges.

What is interesting is that all the subjects received the exact same essay, and the photograph attached to it was randomly assigned.

Bottom line: physical attractiveness causes graders to give essay writers better scores on their essays.

Here’s what’s going on …

(more…)

“The single biggest problem in business …”

April 21, 2015

Dan Lovallo, a professor and decision-making researcher says, “Confirmation bias is probably the single biggest problem in business, because even the most sophisticated people get it wrong. People go out and they’re collecting the data, and they don’t realize they’re cooking the books.”

What’s this “confirmation bias” that Lovello is talking about?

No surprise, people tend to seek out information that supports their existing beliefs.

You know, liberals watch MSNBC, read the NY Times listen to BBC podcasts; conservatives watch FOX, read the WSJ and listen to Rush.

Behavioral psychologists call the he dynamic “confirmation bias”.

 

clip_image002

=====

In socio-politics, the confirmation bias tends to harden polarized positions. People just gather debate fodder rather than probing both sides of issues.

In the realm of decision making, confirmation bias has a dysfunctional effect: it leads to bad decisions.

(more…)

Biases: The “halo effect” … rock on, sister!

April 12, 2015

We’ve covering the Halo Effect in class this week, so it’s time to dust off one of my favorite posts …

======

I’ll explain the picture later, but first, the back story.

A couple of interesting dots got connected last week.

 

image

First, I started watching The Voice.

I liked the talent and the bantering among the coaches, but wondered why they used the turning chairs gimmick.  You know, judges can’t see the the performers, they can just hear them.

Became apparent when Usher turned his chair and was surprised to see that the high-pitched soul singer was a big white guy.

Hmmm.

=====

Second, for the course I’m currently teaching, I’ve been reading a book called The Art of Thinking Clearly — a series of short essays on cognitive biases – those sneaky psychological effects that impair our decision-making.

(more…)

What are your chances of dying from ___ ?

March 17, 2015

OK, here’s a test for you  …

image

Rank the the following by the odds that somebody who is in the group or who is exposed to the risk is likely to die.

Make #1 the highest risk of dying in the next year; make #7 the lowest risk circumstance

  • For women giving birth
  • For anyone thirty-five to forty-four years old
  • From asbestos in schools
  • For anyone for any reason
  • From lightning
  • For police on the job
  • From airplane crashes

And the answer is …

(more…)

Cognitive Biases: Which is more painful?

February 23, 2015

Interesting study on cognitive biases from Daniel Kahneman’s Thinking, Fast and Slow

Patients undergoing a painful medical procedure – think, colonoscopy without anesthesia – recorded their pain levels during the procedure on a range from no pain (zero) to excruciating (10).

Some of the procedures were short in duration … others were longer.

Below is the pain chart for 2 representative patients.

image

The patients were asked – after the fact—how painful the procedure was.

What’s your bet?  Which patient claimed to have undergone the more painful procedure?

(more…)

Nums: 94% of profs rate themselves above average … but, don’t we all?

January 14, 2015

According to LiveScience.com

Since psychological studies first began, people have given themselves top marks for most positive traits.

While most people do well at assessing others, they are wildly positive about their own abilities.

image

The phenomenon is known as illusory superiority. (more…)

Controversy in the NFL play-offs … What would Zeus say?

January 6, 2015

No, we’re not talking about the defensive pass interference penalty flag that was picked up without explanation in the Cowboys-Lions game.

Everybody is all over that one.  So, we’ll pass.

What caught my eye was a piece in SBNation headlined: “Lions fans should be a bit mad at the referees for what happened as they tried to seal a win. They should be just as mad at their coach, though.”

image

The situation:

Late in the game, the Lions had a fourth-and-1 on the Dallas 46.

At first, they lined up to go for it. But they didn’t.

Instead, the Lion’s punter shanked a 10-yarder …

Retrospectively, a bad call, for sure.

But, coach Caldwell was just going with coaches’ conventional wisdom.

Leading to a broader question: how often is NFL coaches’ conventional wisdom right (or wrong)?

I’ve got something on that …

(more…)

Cognitive Biases: Which is more painful?

December 5, 2014

Interesting study on cognitive biases from Daniel Kahneman’s Thinking, Fast and Slow

Patients undergoing a painful medical procedure – think, colonoscopy without anesthesia – recorded their pain levels during the procedure on a range from no pain (zero) to excruciating (10).

Some of the procedures were short in duration … others were longer.

Below is the pain chart for 2 representative patients.

image

The patients were asked – after the fact—how painful the procedure was.

What’s your bet?  Which patient claimed to have undergone the more painful procedure?

(more…)

Sen. Schumer awakens to gains, losses, the endowment effect

December 1, 2014

Last week, Sen. Chuck Schumer caused a stir in Democrat ranks’ by observing that President Barack Obama’s insistence on revamping the healthcare system was, in Schumer’s words, “misguided” and was a major cause of the GOP’s mid-term election romp & stomp.

Schumer is still all for massive healthcare changes.

His observation is strictly political.

His reasoning:

“Democrats were targeting the uninsured, a population that  makes up only about 5 percent of registered voters. Only about one-third of the uninsured are registered or eligible to vote.”  Source

Schumer’s on the right track, but misses a bigger point: When people are forced to give up something they have, they overvalue the loss and try hard to recoup it.

Think, the higher premiums and changed doctors that millions of folks have had had to endure.

Behavioral theorists have long observed that most people are risk adverse and, due in part to an “endowment effect”, they “value” losses greater than gains.

Endowment Effect: People tend to ascribe a higher value to things that they already own than to comparable things that they don’t own. For example, a car-seller might think his sleek machine is “worth” $10,000 even though credible appraisers say it’s worth $7,500. Sometimes the difference is due to information asymmetry (e.g. the owner knows more about the car’s fine points), but usually it’s just a cognitive bias – the Endowment Effect.

The chart below illustrates the gains & losses concept.

  • Note that the “value line” is steeper on the losses side of the chart than on the gains side.
  • L & G are equivalently sized changes from a current position.
  • The gain (G) generates an increase in value equal to X.
  • The loss (L) generates a decrease in value that is generally found to be 2 to 3 times an equivalently sized gain

clip_image001

=====

For example, would you take any of these coin flip gambles?

  1. Heads: win $100; Tails: lose $100
  2. Heads: win $150; Tails: lose $100
  3. Heads: win $200; Tails: lose $100
  4. Heads: win $300; Tails: lose $100

Most people pass on #1 and #2, but would hop on #3 and #4.

OK, now let’s show how all of this relates to ObamaCare.

(more…)

What the hell is a “devil’s advocate”?

November 24, 2014

This came in this week in class … subject was “confirmation bias” … how people naturally lock onto beliefs and only seek or notice that aligns with their going-in position.

One of the antidotes is enlisting a so-called devil’s advocate” to keep things honest.

A what?

You know, we’ve all been there …

You’re in meetings pitching an idea when some jabrone pipes in:

“Let me play the role of devil’s advocate …”

He then blasts your idea with half-baked criticisms.

As you aggressively defend your cherished idea, he backs off:

“Hey man, I’m just playing devil’s advocate”.

“Say, what? You mean your  just made up those cheap shots?”

 

clip_image002

 

I’ve been reading books on decision making this summer.

A couple have praised the use of so-called devil’s advocates to validate ideas and arguments.

Here’s what they’re talking about …

(more…)

Biases: The favorite-long shot bias …

November 12, 2014

In gambling and economics, there’s an observed phenomenon favorite-long shot bias.

image

Here’s how it works …

 

(more…)

Dilemma: The case of the lost concert tickets …

November 10, 2014

 

A classic “framing” question from Kahneman’s Thinking Fast, Thinking Slow

Here’s the situation:

A woman has bought two $80 tickets to the theater.

When she arrives at the theater, she opens her wallet and discovers that the tickets are missing.

$80 tickets are still available at the box office.

Will she buy two more tickets to see the play?

 

clip_image002

 

Most (but, not all) survey respondents answer that the woman will go home without seeing the show.

Let’s try another situation …

(more…)

Are you a maximizer or satisficer?

October 28, 2014

interesting piece from the WSJ

Psychology researchers have studied how people make decisions and concluded there are two basic styles.

“Maximizers” like to take their time and weigh a wide range of options—sometimes every possible one—before choosing.

“Satisficers” would rather be fast than thorough; they prefer to quickly choose the option that fills the minimum criteria (the word “satisfice” blends “satisfy” and “suffice”).

“Maximizers are people who want the very best.

Satisficers are people who want good enough,”

image

Take the quick test below to see if you’re a maximizer or satisficer…. and see what the implications are.. 

(more…)

Even if you’re smart, you might not be logical …

October 16, 2014

Jacked from researchers at the Univ. of Toronto …

“Although intelligence as measured by IQ tests is important, so is the ability to think rationally about problems.

The surprise is that less intelligent people usually perform just as well as highly intelligent people on problems that test rationality.”

Below is a question to test if you’re a rational (i.e. logical) thinker … or just smart

image


Question

The XYZ virus causes a disease in one in every 1,000 people.

A test always correctly indicates if a person is infected.

The test has a false-positive rate of five per cent.

In other words, the test wrongly indicates that the XYZ virus is present in five per cent of the cases in which the person does not have the virus.

What is the probability that an individual testing positive actually has the XYZ virus?

Answer

Most people say 95 % … but the answer is 2%.

If one in 1,000 people has the disease, 999 don’t.

But with a five per cent false-positive rate, the test will show that almost 50 of them are infected (5% X 999 = 49.95 = approx. 50).

Of 51 patients testing positive, only one will actually be infected.

And, 1 divided by 51 is about 2%

“The math here isn’t especially hard. But thinking the problem through is tricky.”

Source

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Do better looking students get better grades?

September 22, 2014

You bet they do …

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Prof Robert Kaplan of San Diego State University conducted an experiment:

Faculty subjects were asked to grade an essay written by a student.

A photograph of the student was attached to the essay.

The grade given for the essay correlated strongly with a subjective attractiveness scale evaluated by other judges.

What is interesting is that all the subjects received the exact same essay, and the photograph attached to it was randomly assigned.

Bottom line: physical attractiveness causes graders to give essay writers better scores on their essays.

Here’s what’s going on …

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“The single biggest problem in business …”

August 15, 2014

Dan Lovallo, a professor and decision-making researcher says, “Confirmation bias is probably the single biggest problem in business, because even the most sophisticated people get it wrong. People go out and they’re collecting the data, and they don’t realize they’re cooking the books.”

What’s this “confirmation bias” that Lovello is talking about?

No surprise, people tend to seek out information that supports their existing beliefs.

You know, liberals watch MSNBC, read the NY Times listen to BBC podcasts; conservatives watch FOX, read the WSJ and listen to Rush.

Behavioral psychologists call the he dynamic “confirmation bias”.

 

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In socio-politics, the confirmation bias tends to harden polarized positions. People just gather debate fodder rather than probing both sides of issues.

In the realm of decision making, confirmation bias has a dysfunctional effect: it leads to bad decisions.

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Don’t be so paranoid, assume a “positive intent” …

August 8, 2014

I know that Andy Grove of Intel says “only the paranoid survive”.

But, work relationships are sometimes corrupted by negative assumptions that take on a life all their own.

A jabrone speaks out against your idea in a meeting, and you naturally assume that he’s trying to sabotage your or embarrass you in front of the boss.

If this situation happens a couple of times, you might declare war and go on the offensive to neutralize or defeat him.

 

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To interrupt this cycle, some organizational leaders urge their employees to “assume positive intent,”

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The 7-year itch … here’s proof!

August 7, 2014

Here’s an interesting study excepted from Kahneman’s Thinking Fast, Thinking Slow

Let’s start with some background … straight from Wiki:

The “seven-year itch” is a psychological term that suggests that happiness in a relationship declines after around year seven of a marriage.

The phrase was first used to describe an inclination to become unfaithful after seven years of marriage in the play The Seven Year Itch by George Axelrod, and gained popularity following the 1955 film adaptation starring Marilyn Monroe and Tom Ewell.

The phrase has since expanded to indicate cycles of dissatisfaction not only in interpersonal relationships but in any situation such as working a full-time job or buying a house, where a decrease in happiness and satisfaction is often seen over long periods of time.

 

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OK, so is the 7-year itch just folklore for real?

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What the hell is a “devil’s advocate”?

August 5, 2014

We’ve all been there …

We’re in meetings pitching an idea when some jabrone pipes in:

“Let me play the role of devil’s advocate …”

He then blasts your idea with half-baked criticisms.

As you aggressively defend your cherished idea, he backs off:

“Hey man, I’m just playing devil’s advocate”.

“Say, what? You mean your  just made up those cheap shots?”

 

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I’ve been reading books on decision making this summer.

A couple have praised the use of so-called devil’s advocates to validate ideas and arguments.

Here’s what they’re talking about …

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Dilemma: The case of the lost concert tickets …

July 31, 2014

 

A classic “framing” question from Kahneman’s Thinking Fast, Thinking Slow

Here’s the situation:

A woman has bought two $80 tickets to the theater.

When she arrives at the theater, she opens her wallet and discovers that the tickets are missing.

$80 tickets are still available at the box office.

Will she buy two more tickets to see the play?

 

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Most (but, not all) survey respondents answer that the woman will go home without seeing the show.

Let’s try another situation …

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Gains, losses, the endowment effect … and ObamaCare

July 29, 2014

Behavioral theorists have long observed that most people are risk adverse and, due in part to an “endowment effect”, they “value” losses greater than gains.

Endowment Effect: People tend to ascribe a higher value to things that they already own than to comparable things that they don’t own. For example, a car-seller might think his sleek machine is “worth” $10,000 even though credible appraisers say it’s worth $7,500. Sometimes the difference is due to information asymmetry (e.g. the owner knows more about the car’s fine points), but usually it’s just a cognitive bias – the Endowment Effect.

The chart below illustrates the gains & losses concept.

  • Note that the “value line” is steeper on the losses side of the chart than on the gains side.
  • L & G are equivalently sized changes from a current position.
  • The gain (G) generates an increase in value equal to X.
  • The loss (L) generates a decrease in value that is generally found to be 2 to 3 times an equivalently sized gain

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For example, would you take any of these coin flip gambles?

  1. Heads: win $100; Tails: lose $100
  2. Heads: win $150; Tails: lose $100
  3. Heads: win $200; Tails: lose $100
  4. Heads: win $300; Tails: lose $100

Most people pass on #1 and #2, but would hop on #3 and #4.

OK, now let’s show how all of this relates to ObamaCare.

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Test your intuition: Can you tell a book by its cover?

July 23, 2014

Here’s a classic test of intuitive skills excepted from Daniel Kahneman’s Thinking Fast, Thinking Slow

As you consider this question, please assume that Steve – the subject — was selected at random from a representative sample.

Steve has been described by a neighbor as follows: “Steve is very shy and withdrawn, invariably helpful but with little interest in people or in the world of reality. A meek and tidy soul, he has a need for order and structure, and a passion for detail .”

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Is Steve more likely to be a librarian or a farmer?
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Cognitive Biases: Which is more painful?

July 22, 2014

Interesting study on cognitive biases from Daniel Kahneman’s Thinking, Fast and Slow

Patients undergoing a painful medical procedure – think, colonoscopy without anesthesia – recorded their pain levels during the procedure on a range from no pain (zero) to excruciating (10).

Some of the procedures were short in duration … others were longer.

Below is the pain chart for 2 representative patients.

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The patients were asked – after the fact—how painful the procedure was.

What’s your bet?  Which patient claimed to have undergone the more painful procedure?

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