One of the most brilliant minds to influence decision theory and psychology in general, Kahneman was recently profiled by Jeremy Clift of Finance and Development. It’s fairly brief and a good intro for anyone who hasn’t explored Kahneman’s work.

In a former life in Africa (one I hope to resume at a later date), I worked in the international development aid industry and have followed F&D (and the IMF in general) for a long time. More recently, I took an interest in game theory, decision theory, and cognitive science, when I decided that I needed to study the affairs of nations and transnational actors with a bit more rigor.

My exploration of decision theory as an application in international relations at graduate school in 2004/2005 led me to Kahneman’s and Tversky’s Prospect Theory. (The theory wasn’t new at the time, but my interest in it was.) Since that moment, his work (and Tversky’s) has influenced my studies on identity politics, social movement theory (an undergrad research project), and on the curious failure of US foreign policy to achieve its stated aims over the past twenty years. More relevent for this blog, Kahneman’s work in heuristics and biases — specifically in framing effects and anchoring – has profoundly influenced my experience of currency and futures trading. Much more so than the conventional psychological palaver that other traders seem to prefer. (Kahneman and Tversky were not the first to assert the importance of framing and they aren’t the only prominent voices on the topic. Among others, George Lakoff is one of my favorites and comes from a different angle.)

Kahneman has a fascinating (and dramatic) background and a unique outlook in general. So it’s always a treat to hear him speak. I try to keep up with all of them, but it’s hard with so many damn interests and so little time.

Be sure to check out the videos in the left sidebar of the F&D homepage, where Kahneman talks about Greenspan, intuition, and rationality. Very interesting! (Also check out the article on the future of reserve currencies in the same Sep 09 issue.)

Enjoy.

Em um dos textos publicados pelo Economiquement, entitulado de “As Escolhas”, foi demonstrado com base em palestras dos autores Malcolm Gladwell e Barry Schwartz, como as escolhas podem ajudar ou atrapalhar na decição dos clientes por um produto.  SCHWARTZ relembra que:

“À medida que aumenta o número de opções, o esforço exigido para tomar uma decisão acertada também aumenta; esse é um dos motivos pelos quais a escolha pode deixar de ser uma vantagem para se transformar em um ônus.”

Na dita Economia Clássica o Homem é um ser infinitamente racional que toma decisões econômicas visando sempre o seu próprio bem. (Isto é, o Homem é inteligente, egoísta e sensato). Kahneman demonstrou, e vem daí o seu Nobel, que as pessoas, em meio a situações econômicas (poupar, gastar, investir, etc) muitas vezes não são racionais, nem egoístas e nem sensatas. Entre a situação econômica e a resposta emitida há processos comportamentais que Kahneman apelidou de “viéses psicológicos” (Entre eles o “Viés de Otimismo”).

A Economia não é apenas uma forma de gerenciar recursos escassos (sua definição clássica, de Adam Smith e afins), mas também o estudo de como motivações afetam a decisão de indivíduos e grupos. Kahneman, Malcolm Gladwell e Barry Schwartz, são autores que defendem que essa disciplina científica é na verdade o estudo da dinâmica de interesses, motivações e decisões de pessoas em grupo. Citando um exemplo do texto “Economia Comportamental ou Análise Experimental do Comportamento?”, seria uma questão genuinamente econômica:

“Como três garotos devem fazer para dividir duas barras de chocolate, sendo dois deles egoistas e um altruista?”

Dan Ariely, autor do livro “Previsivelmente Irracional” e tema de outros textos abordados no blog  (O Curioso Paradoxo do “Viés de Otimismo”, “Pagamento por Desempenho”), cita em seu livro  o estudo “When Choice is Demotivating” (Quando escolher é desmotivante) onde os pesquisadores Sheena Iyengar e Mark Lepper testaram numa degustação em uma delicatessem a influência da variedade nas decisões de compra. Um balcão de experimentação com 24 sabores diferentes de geléias chamava a atenção de 60% dos consumidores (145 de 242) que faziam compras na loja, mas quando eram apenas seis variedades, somente 40% olhavam mais detidamente (104 de 260). Embora a porcentagem dos que provaram algumas das geléias fosse semelhante nos dois grupos, a taxa de conversão (compras efetuadas) foi drasticamente diferente: dos 145 clientes que provaram uma das 24 geléias, 4 compraram um pote (2,8%). Já dos 104 que experimentaram ao menos uma das seis opções, 31 levaram uma para casa (29,8%). Uma taxa de conversão altíssima e nada menos do que dez vezes superior à outra.

São apenas mais exemplos de como a quantidade de opções podem influênciar as decisões dos consumidores, a Economia Clássica já nao consegue explicar como  as pessoas fazem suas “ecolhas” porque a teoria do homem “racional” evoluiu para a teoria do homem “irracional”. Os viéses psicológicos podem influênciar  as motivações e decisões de pessoas em grupo demostrando que as pessoas não são tão previsiveis quanto parecem.

Fonte: www.flickr.com/trelkovski

La mia riflessione parte dall’intervento del Ministro Tremonti tenuto al meeting di Rimini sulla incapacità di previsione da parte degli economisti, a suo dire paragonabili a dei maghi e poco propensi a scusarsi per non aver capito in tempo che ci stavamo avvicinando quasi alla fine del capitalismo moderno.

Ovviamente al di là delle provocazioni utili a colorire un pensiero e al fatto che ognuno fa il suo mestiere e quindi ognuno tira l’acqua al suo mulino, cerchiamo di fare qualche  ragionamento utile che serva a gestire meglio i propri risparmi e il proprio patrimonio.

La sete di conoscenza  e di prevedere il futuro è nata sicuramente con l‘uomo, ed è sicuramente essa che ci ha permesso di evolvere e di ottenere quei progressi scientifici che hanno indubbiamente migliorato la nostra qualità di vita. Gli studiosi di economia in quanto uomini non si escludono da questo processo, ma la difficoltà di calcolare tantissime variabili, compresa la più complicata l’uomo, che con i suoi comportamenti per lo più inconsapevoli (vedi gli studi dello psicologo D. Kahneman sulla finanza comportamentale, che gli sono valsi il premio Nobel per l’economia nel 2002) rende la previsione complicatissima. Forse le conoscenze acquisite fino ad oggi dagli economisti  possono metterli nella condizione di spiegare bene quello che sta accadendo nel presente, ma ancora difficilmente riusciranno a prevedere perfettamente gli eventi futuri.

A sostegno di tutto ciò sottolineo il pensiero di Taleb contenuto nel suo libro “Il cigno nero”, per cui la nostra vita e quindi anche la finanza è influenzata in modo determinante da eventi imprevedibili, che possono mettere in discussione certezze granitiche, che con un evento improvviso si sgretolano come castelli di sabbia.

Detto questo si capisce ancor di più il motivo per cui, l’unico modo attraverso il quale si può gestire al meglio i propri risparmi proteggendoli dagli inevitabili imprevisti è quello di effettuare una precisa pianificazione finanziaria, possibilmente con un buon Consulente Finanziario Indipendente.

Egli può aiutare  il proprio cliente  ad effettuare un’analisi accurata dello stato patrimoniale e del proprio conto economico e soprattutto contribuire ad individuare nel suo interlocutore obiettivi chiari e realistici per poter sapere sempre dove andare anche in situazioni impreviste.

E’ per questo che un buon consulente non vi prometterà mai rendimenti più alti rispetto al mercato o  previsioni certe sull’andamento di un titolo, ma si concentrerà soprattutto sulla conoscenza del suo cliente per offrire risposte e assistenza efficiente.

Massimo Del Cupola – Studio Del Cupola – www.massimodelcupola.it – Napoli

…or why people are irrational.  A must read. From the University of Toronto magazine:

Copyright © 2009 University of Toronto Magazine. All rights reserved.

It turns out that even medical doctors are subject to the whims of irrationality and the phenomena of behavioral economics.

This would come as no surprise to Nassim Taleb (whose next book I fear will not be very kind to the medical profession – http://www.fooledbyrandomness.com/notebook.htm), but is likely to be a bit disturbing to the rest of us who tend to be guilty of assigning god-like status to our physicians.

If you ever wondered whether pharma companies are effective at influencing the behavior of doctors, please read the linked article below.

The Ethical Taint of Post-It Notes — and the Power of a Company Policy « Lead Good

From Scientific American Magazine , June 22, 2009:

Traditionally, decision making in organizations is considered to be entirely rational. Pros and cons are carefully looked at and compared by perceptive minds, probabilities of outcomes and expected values are painstakingly calculated,  and, the one and the only perfect decision is made.

Nothing can be further from the truth.

Recently, I spoke in front of 130 professionals on the subject of decision making and business cases. To illustrate the key principles of behavioral economics, I conducted a survey with two groups of 10 participants. Both groups were asked the same question, which went like this: “You are shopping with a friend. You are about to buy an item when your friend tells you that she saw it in a store within a 10 minute walk and it was $7 less than what you are about to pay. Will you go to that store now to take advantage of the lower price?”

The first group was told that they were shopping for a $25 pen. Eight out ot ten said they would take the 10-minute walk. The second group was shopping for a $450 suit. Only two out of ten said they would go.

But the question has nothing to do with the cost of the item, it is really about the cost of your time. Is a 10-minute walk worth $7 or not?

In fact, even most basic of our brain’s functions can be fooled. Take a look at this wicked visual illusion, for example.

Nice little post here from the blog “Unbundling as a Pricing Strategy.”  It’s a good example of applying choice architecture and libertarian paternalism to everyday choices that cary with them much grander consequences.

“When people see a 5 cent charge per bag they are more than likely to bring their own bags than if there were given a credit for each bag.”

Here is an Ad for Wendy’s double stack burger that shows very neatly Loss aversion. (what for 7 seconds into the video for the Wendy’s Ad, as the beginning of the video has another Ad for Religulous)

The Adman says, “your burger has increased in value”. This is only partly true as the value is in the minds of the customer who is holding it and it is the perceived value. Loss aversion is a theory introduced by Kahneman and Tversky and it states that people tend to value  their possessions more than those who do not. Since the perceived value goes up, they are less reluctant to part with the goods at prices they bought or at the current market price. A much better  (than this blog post for sure) explanation of Loss aversion is given in Dan Ariely’s book, Predictably Irrational.

As a corollary, if the customer feels ownership of the object then their   willingness to pay goes up as well. An example of this was discussed in my last post  You touch it! You own it!

How Obama was (and is) using behavioural economics.  Methinks the subject is fit for an appendix to Machiavelli.

How Obama Is Using the Science of Change

Correction Appended: April 2, 2009

Two weeks before Election Day, Barack Obama’s campaign was mobilizing millions of supporters; it was a bit late to start rewriting get-out-the-vote (GOTV) scripts. “BUT, BUT, BUT,” deputy field director Mike Moffo wrote to Obama’s GOTV operatives nationwide, “What if I told you a world-famous team of genius scientists, psychologists and economists wrote down the best techniques for GOTV scripting?!?! Would you be interested in at least taking a look? Of course you would!!”

Moffo then passed along guidelines and a sample script from the Consortium of Behavioral Scientists, a secret advisory group of 29 of the nation’s leading behaviorists. The key guideline was a simple message: “A Record Turnout Is Expected.” That’s because studies by psychologist Robert Cialdini and other group members had found that the most powerful motivator for hotel guests to reuse towels, national-park visitors to stay on marked trails and citizens to vote is the suggestion that everyone is doing it. “People want to do what they think others will do,” says Cialdini, author of the best seller Influence. “The Obama campaign really got that.” (See pictures of Obama taken by everyday Americans.)

The existence of this behavioral dream team — which also included best-selling authors Dan Ariely of MIT (Predictably Irrational) and Richard Thaler and Cass Sunstein of the University of Chicago (Nudge) as well as Nobel laureate Daniel Kahneman of Princeton — has never been publicly disclosed, even though its members gave Obama white papers on messaging, fundraising and rumor control as well as voter mobilization. All their proposals — among them the famous online fundraising lotteries that gave small donors a chance to win face time with Obama — came with footnotes to peer-reviewed academic research. “It was amazing to have these bullet points telling us what to do and the science behind it,” Moffo tells TIME. “These guys really know what makes people tick.”

President Obama is still relying on behavioral science. But now his Administration is using it to try to transform the country. Because when you know what makes people tick, it’s a lot easier to help them change.

The Nudge Factor
We all know Obama won the election because he looked like change, sounded like change and never stopped campaigning for change. But he didn’t call for just change in Washington — or even just change in America. From his declarations that “change comes from the bottom up” to his admonitions about “an era of profound irresponsibility,” Obama called for change in Americans. And not just in bankers or insurers — in all of us. His Zen koan, “We are the change we’ve been waiting for,” may sound like New Age gibberish, but it’s at the core of his agenda.

In fact, Obama is betting his presidency on our ability to change our behavior. His top priorities — the economy, health care and energy — all depend on it. We need to spend more money now to avert a short-term depression, then save more money later to secure our long-term economic future. We need to consume less energy in order to reduce our oil imports and carbon emissions as well as our household expenses. We need to quit smoking, lay off the Twinkies and avoid other risky behaviors that both damage our personal health and boost the costs of care that are ravaging the nation’s fiscal health. Basically, we need to make better choices — about mortgages and credit cards, insurance and retirement plans — so we won’t need bailouts down the road.

The problem, as anyone with a sweet tooth, an alcoholic relative or a maxed-out Visa card knows, is that old habits die hard. Temptation is strong. We are weak. We’ve got plenty of gurus, talk-show hosts and celebrity spokespeople badgering us to save energy, lose weight and live within our means, but we’re still addicted to oil, junk food and debt. It’s fair to ask whether we’re even capable of changing.

See pictures of the best Obama Inaugural merchandise.

See pictures of Obama’s college years.

But the latest science suggests that yes, we can. Studies of all kinds of human frailties are revealing how to help people change — not only through mandates or financial incentives but also via subtler nudges that preserve our freedom to make choices while encouraging us to make better ones, from automatic-enrollment 401(k) plans that require us to opt out if we don’t want to save for retirement to smart meters that warn us about how much energy we’re using. These nudges can trigger huge changes; in a 2001 study, only 36% of women joined a 401(k) plan when they had to sign up for it, but when they had to opt out, 86% participated.

It’s no coincidence that Obama’s budget proposes an ambitious program of automatic-enrollment pensions for workplaces that don’t offer 401(k)s or that his stimulus package has billions of dollars for smart meters. Behavioral science — especially the burgeoning field of behavioral economics that has been popularized by Freakonomics, The Wisdom of Crowds, Predictably Irrational, Nudge and Animal Spirits, which is the new must-read in Obamaworld — is already shaping dozens of Administration policies. “It really applies to all the big areas where we need change,” says Obama budget director Peter Orszag. (See the top 10 nonfiction books of 2008.)

Orszag has been an unabashed behavioral geek ever since he read that 401(k) study. His deputy, Jeff Liebman of Harvard, is a noted behavioral economist, as are White House economic adviser Austan Goolsbee of the University of Chicago, Assistant Treasury Secretary nominee Alan Krueger of Princeton and several other key aides. Sunstein has been nominated to be Obama’s regulatory czar. Even National Economic Council director Larry Summers has done work on behavioral finance. And Harvard economist Sendhil Mullainathan is organizing an outside network of behavioral experts to provide the Administration with policy ideas.

Obama has a community organizer’s appreciation for human motivation, and his rhetoric often sounds as if it’s straight out of a behavioral textbook. He has also read Nudge, which inspired him to pick his friend Sunstein — best known as a constitutional scholar — to run the Office of Information and Regulatory Affairs, the obscure but influential corner of the Office of Management and Budget where federal regulations are reviewed and rewritten. “Cass is one of the people in the Administration he knows best,” says Thaler, the founder of behavioral economics and co-author of Nudge. “He knew what he was doing when he gave Cass that job.” (See who’s who in Obama’s White House.)

The first sign of the behavioralist takeover surfaced on April 1, when Americans began receiving $116 billion worth of payroll-tax cuts from the stimulus package. Obama isn’t sending us one-time rebate checks. Reason: his goal is to jump-start consumer spending, and research has shown we’re more likely to save money rather than spend it when we get it in a big chunk. Instead, Obama made sure the tax cuts will be paid out through decreased withholding, so our regular paychecks will grow a bit and we’ll be less likely to notice the windfall. The idea, an aide explains, is to manipulate us into spending the extra cash.

Obama’s efforts to change us carry a clear political risk. Republicans already portray him as a nanny-state scold, an élitist Big Brother lecturing us about inflating our tires and reading to our kids. We elected a President, not a life coach, and we might not like elected officials’ challenging our right to be couch potatoes. Obama’s aides seem to favor nudges that preserve free choice over heavy-handed regulation, an approach Thaler and Sunstein, the co-authors of Nudge, call “libertarian paternalism.” But it’s still paternalism, and Sunstein will have the power to put it into action. The idea of public officials, even well-meaning ones, trying to engineer our private behavior to produce change can seem a bit creepy.

But face it: Obama is right. Our emissions are boiling the planet, and most of our energy use is unnecessary. Our health expenditures are bankrupting the Treasury, and most of our visits to the doctor can be traced to unhealthy behavior. We do need to change, and we know it.

So why don’t we? And how can we? The behaviorists have ideas, and the Administration is listening.

See pictures of the civil rights movement, from Emmett Till to Barack Obama.

See pictures of Sasha and Malia Obama at the Inauguration.

Economics for the Real World
Obama has pledged that his bank-regulation overhaul would be based “not on abstract models … but on actual data on how actual people make financial decisions.” That’s a plain-English way of saying it will be guided by behavioral economics, not neoclassical economics.

Neoclassical economics — another University of Chicago specialty — has ruled our world for decades. It’s the doctrine that markets know best: when government keeps its hands off free enterprise, capital migrates to its most productive uses and society prospers. But its elegant models rely on a bold assumption: rational decisions by self-interested individuals create efficient markets. Behavioral economics challenged this assumption, and the financial meltdown has just about shattered it; even former Fed chairman Alan Greenspan confessed his Chicago School worldview has been shaken. “We couldn’t have planned a better marketing campaign for behavioral economics,” MIT’s Ariely quips. (See the best business deals of 2008.)

Behavioral economics doesn’t ignore the market forces that were all-powerful in Econ 101, but it harnesses forces traditionally consigned to Psych 101. Behaviorists have always known we don’t really act like the superrational Homo economicus of the neoclassical-model world. Years of studies of patients who don’t take their meds, grownups who have unsafe sex, and other flawed decision makers have chronicled the irrationality of Homo sapiens. Some of our foibles are quite specific, like overvaluing things we have, overeating food in larger containers and overestimating the probability of improbable events — the quirk that made the Meet Barack Obama fundraising lottery such a smart idea. But in general, we’re ignorant, shortsighted and biased toward the status quo. We’re not as smart as Larry Summers. We procrastinate. Our impulsive ids overwhelm our logical superegos. We plan to lose weight, but ooh — a cupcake! We’re especially irrational about money; we’ll pay more for the same thing if we can use a credit card, if we think it’s on sale, if it’s marketed with photos of attractive women. No wonder we apply for mortgages we can’t afford. No wonder our bankers approve them.

“We truly want to make better choices,” explains Yale economist Dean Karlan. He’s a co-founder of stickK.com, where users make binding “commitment contracts” to forfeit money to friends or charities — or even “anti-charities” they despise — if they fail to quit smoking, lose weight or meet other goals they set for themselves. “But we need help to get us there.”

The Need to Know
The first step is knowledge. Studies suggest that better information — from public-service announcements, appeals by respected figures, even serial dramas to help reduce teen pregnancy and other social ills in developing countries — can assist us in making better choices. There was a run on energy-efficient lightbulbs after Oprah urged viewers to buy them; similarly, Michelle Obama’s White House vegetable garden is intended to urge us toward fresh produce. We don’t all realize that idling our cars wastes more energy than turning them off and on, or that granola is high in fat. And some of our choices are simply bewildering, which is why it’s so easy to stumble into hidden fees and balloon payments tucked in the fine print of our mortgages. Even Ph.D.s can get confused by our society’s paperwork; Thaler and Sunstein tell a story in Nudge about struggling to help a health economist pick a prescription-drug plan for her parents.

Nudge calls for aggressive rules for disclosure and clarity, to help us make more informed decisions about home loans, student loans, credit cards, health-care plans and retirement plans. Thaler points to an Executive Order, signed by Obama on his second day in office, that calls for new transparency through new technologies. “That’s exactly what this is about,” Thaler says. “If instead of the 30 pages of unintelligible crap that comes with a mortgage, you can upload it with one click to a website that will explain it and help you shop for alternatives, you make it as easy as shopping for a hotel.”

See pictures of Michelle Obama’s fashion looks.

See pictures of the Obamas in Europe.

More information can make us healthier too, which is why the stimulus poured $1.1 billion into “comparative effectiveness” research. Orszag has reams of charts showing that medical tactics and costs vary wildly across the country, with little regard for what works. He’d like to document best practices — from emergency-room to-do lists that dramatically reduce infections to protocols for when pricey tests and surgeries really help — and then have all medical providers adopt them. This approach has helped American anesthesiologists reduce deaths as well as costs.

But information alone isn’t enough. We all know we shouldn’t smoke or pig out on fudge, but knowledge isn’t as powerful as motivation; even Summers could stand to lose a few pounds. Old behavioralist joke: How many psychologists does it take to change a lightbulb? Answer: Just one, but the bulb really has to want to change. (See the top 10 scientific discoveries of 2008.)

It’s Got to Be Easy
Econ 101 relies on prices to promote change, and it’s true that $4 gas got us to drive less. But prices aren’t everything.

Even when utilities will pay for efficiency upgrades that will save us money for years, we’re unlikely to make retrofits — unless the utilities take care of the schlep factors, like finding contractors and inspecting the work. Cheap is alluring; easy can be irresistible.

This is why default options pack such power. Most of us will save for retirement, run our computers in energy-efficient mode and be organ donors if we have to take action to say no — but not if we have to take action to say yes. Almost nobody signed up for a German utility’s clean-energy plan until it became the default, and then 94% stuck with it. We’re also much likelier to go to the doctor for preventive care like flu shots if the appointment is made for us. In a speech last year, Orszag even suggested charging us for doctor’s appointments unless we take action to cancel, though he conceded that might sound “a little crazy at first blush or even second blush.”

More along these lines is heading our way. The Administration hopes to harness our inertia with its automatic pension plan, a major step toward universal savings accounts, and by dramatically simplifying applications for federal tuition aid. Its push to computerize health-care records — another big-ticket stimulus item — could make generic drugs and cost-effective procedures our default treatments. And seniors who don’t select health-care or drug plans could be automatically enrolled in low-cost options. “It would be nice if we all behaved like supercomputers, but that’s not how we are,” Orszag says.

While Obama’s economists search for pain-free, hassle-free solutions to our easy-way-out instincts, his rhetoric often aims to build our tolerance for pain and hassle. He urges us to snap out of denial, to accept that we’re in for some prolonged discomfort but not to wallow in it, to focus on our values. That happens to sound a lot like “acceptance and commitment therapy,” the latest advance in behavioral psychology. Instead of assisting smokers to ignore cravings and chronic-pain sufferers to think about other things — the old denial approach — acceptance therapy pushes patients to acknowledge negative thoughts and then overcome them by focusing on values. Even a small amount of this approach seems to help smokers quit, dieters lose weight and patients with diabetes or chronic pain stay out of the hospital. University of Nevada, Reno, psychologist Steven Hayes believes our Prozac culture has trained us to avoid all discomfort, leaving us reluctant to exercise or adjust our thermostats. “We’re supposed to be happy-happy-joy-joy all the time,” Hayes says. “Obama is trying to help us get past that.”

But Obama is no therapist changing individuals one at a time. He’s an organizer trying to build community and inspire collective action through house parties and Facebook as well as rhetoric about shared values. In other words, he’s trying to create social norms — behavioral change’s killer app.

See TIME’s “Six Degrees of Barack Obama.”

See pictures of Obama’s nation of hope.

Everybody’s Doing It!
Which message would persuade homeowners to save electricity: a call to their environmental conscience, or an appeal to their wallet? Cialdini tested those approaches in a San Diego experiment, and the answer was neither. What worked was an appeal to conformity. Residents used less power when they were told their neighbors were using less power. We’re a herdlike species, more likely to be obese if our peers are.

In a 2005 study, Alan Gerber of Yale got Michigan voters to increase their turnout an amazing 8.6% with a single peer-pressure mailer that listed the previous voting records of their neighbors and noted that a follow-up would be sent indicating who voted this time. (The Obama campaign actually priced out a similar mailer but decided not to risk a backlash.) And shame works; even some AIG executives gave up bonuses. Cialdini says brain imaging shows that when we think we’re out of step with our peers, the part of our brain that registers pain shifts into overdrive. “It’s an incredibly powerful spur to action,” he says. (See 25 people to blame for the financial crisis.)

Social norms help explain the attraction of opt-out 401(k)s as well: it’s not just that we’re too lazy to check a box but also that we assume the default is the accepted thing to do. Obama’s push to weatherize millions of homes — another stimulus bonanza — will require new norms. In Oregon, a countywide program to upgrade windows and insulation at almost no cost to homeowners got a tepid response. But after an intense mobilization campaign — through citizen councils, churches and Girl Scouts who went door-to-door asking residents why they hadn’t weatherized yet — 85% of the county enrolled. “What worked was creating a sense that we’re all in this together and you’re a social deviant if you don’t join us,” recalls Ralph Cavanagh of the Natural Resources Defense Council. This is why community report cards help promote preventive health care and why interdorm conservation competitions help colleges save energy. And this is why Administration officials — after their crash course in run-on-the-bank mentalities cited in Animal Spirits — are trying to boost consumer confidence into a social norm.

Sometimes We Need a Shove
But we’re not likely to spend if we don’t have money. And we can’t take public transit if there’s none in our neighborhood. The bully pulpit has limits — Michelle Obama has literally urged us to eat our broccoli, but she can’t make it taste like fudge. “I like nudges, but sometimes we need to do more,” says Harvard’s Mullainathan. Sometimes we need a shove. The research proves change can come about when it’s easy and popular, but making it lucrative — or even mandatory — can make sure it happens.

This is one reason there’s new interest in taxing gas, alcohol, electricity and even trans fats to discourage undesirable behaviors while closing budget gaps. Obama has already hiked taxes on cigarettes and wants to end tax breaks for drilling and offshoring. He seems even more eager to subsidize desirable behaviors like saving, teaching, weatherizing and buying fuel-efficient cars and energy-efficient appliances. Of course, his energy policy goes beyond incentives; he wants a strict national cap on carbon emissions. He has also signaled openness to a national health-insurance mandate. (Read “The Year in Medicine 2008: From A to Z.”)

If neoclassical economics wants government to let us alone to do what we want, behavioral economics leaves room for government action to help us do what we would really want if we were rational agents. Unfortunately, the qualities that have crippled Washington in recent years — inertia, denial, allergy to complexity, preference for short-term gratification over long-term planning — are our own flaws writ large. Members of Congress are people too; they’re likely to embrace change only when it’s easy, popular and rewarding. Do we really want them trying to change us?

Michelle Obama warned us during the campaign, “[Barack] is going to demand that you shed your cynicism, that you put down your divisions, that you come out of your isolation, that you move out of your comfort zones, that you push yourselves to be better.” The President reinforced this in his Inaugural Address when he urged Americans to set aside childish things and choose hope over fear. (See pictures of how Obama prepared his Inauguration speech.)

But we don’t need to change our hearts like that. Opt-out 401(k)s, simpler mortgage applications, programmable thermostats and cost-effective medical protocols can help us do the right things even if we remain ignorant, lazy, greedy and obsessed with childish things. It doesn’t matter if we save energy because we care about the earth or our money or our neighbors; we just need to save energy. The government just needs to provide the right rules, incentives and nudges to help us make the right choices. It would be nice if Obama could change our social norms so that green living and healthy eating and financial responsibility would be new ways of keeping up with the Joneses. But it would be enough if he changed Washington’s social norms. We need better policies, not better attitudes.

Behavioral literature can be a depressing window on human folly. But it offers us ways to transcend our folly, to restrain our ids, to harness our conformity and inertia and weakness in order to do less of the things that hurt us and our country. “In the physical world, we understand our limitations,” Ariely says. “Nobody gets upset because we can’t fly. We just design something to help us fly.” If Obama can help us fly from our bad habits, he’ll provide the change we need.

The original version of this story misidentified Mike Moffo as a field director of Obama’s campaign.

The Good Life (or Eudymonia) is part of what we all search for to some degree or another…. Here are some of the sites I regularly visit. They have been put together by Jill Bolte Taylor, Daniel Kahneman, Daniel Gilbert (whose writing is a delight), Barbara Fredrickson, Daniel Dennett (who’s a hero of mine), and Martin Seligman (the Father of Positive Psychology). Each posting will review one of these sites in detail, pointing you toward what I consider to be particularly useful information.

Martin Seligman’s Authentic Happiness site at the University of Pennsylvania

A blog on the subject of “Authentic Happiness”

The Happiness Project Blog

Dan Gilbert’s Blog – he writes so well!
Daniel Gilbert’s Homepage

Jill Bolte Taylor’s Homepage

Daniel Kahneman’s Page at Princeton University

Barbara Fredrickson’s PepLab site – Excellent research site

TED.com – One of the most interesting sites on the Web.

Here are four (4) videos on TED of Dan Gilbert, Martin Seligman, Daniel Dennett, and Jill Bolte Taylor giving brief, riveting presentations:

Dan Gilbert on TED
Martin Seligman on TED
Daniel Dennett on TED
Jill Bolte Taylor on TED

Enjoy!

David

…you could do worse than to make it this one:

http://nobelprize.org/nobel_prizes/economics/laureates/2002/kahnemann-lecture.pdf

Economist Daniel Kahneman at his most accessible (not particularly) and relevant (very). You can also watch it.

“people rely on a limited number of heuristic principles which reduce the complex tasks of assessing probabilities and predicting values to simpler judgemental operations. In general, these heuristics are quite useful, but sometimes they lead to severe and systematic errors.” Tversky & Kahneman, 1974: 1124

If you prefer your behavioural economics a little less dry, you could try instead, Dan Ariely’s book, Predictably Irrational – apparently there’s an expanded edition coming out in May, but I suspect that as a behavioural economist  he’s pulling a fast one on us. “Expanded? Must be even better!!”

http://www.predictablyirrational.com

Reflections on a crisis – panel featuring Kahneman and Taleb

Taleb’s being Taleb with nothing new to say that you haven’t heard already, but the Kahneman bits are worth listening to.  In particular, his brief comment on the theory of the firm.  The misalignment of incentives of the firm as an abstract entity, and its employees and executives.  This misalignment is primarily due to the time horizon of interest.  A very important concept.

Il modo di pensare ed il linguaggio dei conservatori, negli ultimi trent’anni, si sarebbe largamente imposto tra i media americani. Al punto che il  democratico  Barack Obama ha dovuto denunciare e scontare inizialmente un deficit di empatia,  una mancanza di attenzione. Prestare attenzione non significa soltanto provare empatia, ma assumere responsabilità, agire con forza e con coraggio. Per prestare attenzione, occorrono le forze per farlo e ancor più per farlo con successo. Nello schema lakoffiano, empatia e responsabilità sono al cuore del pensiero progressista. E, potenzialmente, insediate nei circuiti cerebrali di ogni americano. Per il politico progressista, si tratta dunque di risvegliare e di richiamare questi valori, senza cadere nei trabocchetti dei media conservatori: questo è quel che è riuscito, dopo tanti anni di predominio repubblicano, al democratico Obama.
Una trappola classica per il politico progressista  sarebbe consistita nell’accettare di parlare degli interessi dei propri elettori, invece che parlare con loro in termini empatici e responsabili. Quel che si doveva evitare era questo ragionamento: è nel nostro interesse politico aiutare la gente a raggiungere i propri interessi materiali. Se lo faremo, ci voteranno. Di qui programmi come tasse ridotte per la piccola borghesia, affitti calmierati per gli studenti fuori-sede, buoni-casa per i senzatetto, carta verde per gli immigrati clandestini, pensioni migliori per il pubblico impiego, assistenza sanitaria gratuita per i bambini poveri. Programmi che s’ispirano all’empatia, ma fondati sull’argomento dell’interesse dei gruppi, un argomento che – secondo Lakoff – non paga a sinistra. D’interesse economico, parla assai più convincentemente la destra.
Accade lo stesso nell’utilizzo del linguaggio: non è vincente adoperare un contesto linguistico conservatore per proporre valori progressisti. Se i conservatori parlano di “guerra al terrore”, un neoliberale potrebbe riprendere l’espressione  per contrastarla, accettando però così di fatto il contesto conservatore. Il “neoliberale” potrà anche argomentare contro la politica conservatrice, ma se permarrà all’interno del contesto, attiverà e rinforzerà quel contesto, invece che sfidarlo o cambiarlo.
Secondo Lakoff, le prove a sostegno di questa tesi sono innumerevoli; tuttavia, la tesi non fa breccia tra i politici neoliberali [neppure a  politici progressisti che, magari partecipando a "Porta a Porta" o a "Mixer", cadono nelle maglie della trappola nei confronti della quale Lakoff mette in guardia. Un politico di sinistra a "Porta a Porta" rischia di essere comunque funzionale al contesto conservatore]. Non avrà successo neppure esporre le crude cifre, sostenendo che i numeri parlano da soli: non è vero affatto, i numeri parlano all’interno di contesti e dicono cose diverse a secondo dei contesti diversi. Accentuare il lato negativo o quello positivo,per esempio, sposta la bilancia da una parte o dall’altra – come nel caso del famoso bicchiere. Un esempio è dato da un esperimento condotto da Kahneman.

Facciamo finta che vi dicano che siete seriamente malati e che occorre decidiate se sottoporvi ad un’operazione chirurgica: ne va della vostra vita. Nel caso A, vi dicono che avete il 10% di possibilità di morire nel corso dell’intervento. Nel caso B, vi dicono che avete il 90% di possibilità di sopravvivere all’intervento. Il caso A contestualizza la decisione in termini negativi. Il caso B, la contestualizza in termini positivi, di salvezza. Letteralmente, le percentuali in termini di probabilità sono identiche. Nell’esperimento,  molte più persone hanno scelto di sottoporsi all’intervento se si è posta loro la scelta in termini di salvezza, piuttosto che nel contesto negativo. Questo non è razionale dal punto di vista della razionalità economica classica, ma è quel che avviene.
Come contrastare questo imporsi dei contesti richiamati dai media e dalle forze politiche? Quel che non deve essere fatto, è accettare lo stesso agone, controbattere con gli stessi mezzi semantici sia pure con argomentazioni diverse od opposte. Secondo Lakoff, infatti, quello che stiamo imparando sulla frame semantics è molto importante in campo politico proprio perché si è scoperto che se si usa lo stesso linguaggio degli oppositori politici, anche se si stanno in realtà sostenendo opinioni contrarie, si finisce per aiutarli, poiché ogni parola è definita rispetto ad un contesto, e ogni contesto è caratterizzato all’interno di un sistema di contesti. Perciò quando si attiva la parola, automaticamente si attiva il suo contesto, il loro intero sistema di contesti e quindi il loro intero sistema di valori. Dunque, quando si usano i contesti di altre persone – anche se per contrastare le loro opinioni – si sta in realtà accettando il loro sistema di valori e di conseguenza li si sta favorendo.

In positivo, cosa dovrebbe fare un neoliberale americano avvertito? “In primo luogo, la cosa più difficile: pensare al di fuori dall‘illuminismo - in termini di visioni del mondo, contesti, metafore, narrazioni eccetera. Imparare ad argomentare con forza ed emotivamente partendo dalla prospettiva morale empatica e responsabile, valorizzando sempre le idee di protezione e rafforzamento. Aver chiaro che queste sono le basi della democrazia. Rinunciare allo schema destra-sinistra ed all’idea di spostarsi a destra per prendere più voti. Cercare punti in comune tra argomenti diversi. Favorire lo sviluppo di pensatoi su questioni cruciali – nei fatti, sviluppare temi dal sistema morale utili al governo ed ai casi specifici. Mai accettare per i suoi temi contesti conservatori, anche argomentando contro, ma offrire del proprio. Smettere di aiutare l’economia neoliberale a livello globale. Se ci si deve compromettere coi conservatori, iniziare la negoziazione dalla propria posizione morale – empatia e responsabilità, non dall’argomento dell’interesse proprio”[1].

Un esempio concreto di come un politico riesca, se vuole, a non farsi imprigionare in contesti che lo sfavorirebbero, è offerto da una partecipazione di Barack Obama ad un programma della CNN, agli inizi della sua campagna, il 2 giugno 2007. Lo intervistava Wolf Blitzer, un lupo travestito da pecora, un commentatore conservatore travestito da osservatore neutrale. Lakoff riporta il batti e risposta:
Blitzer: Vorrei alzasse la mano se ritiene che l’inglese dovrebbe essere la lingua ufficiale degli Stati Uniti.
Obama rifiuta di alzarla, si alza in piedi, fa un passo avanti e dice:
Obama: “Questo è il genere di domande fatto apposta per dividerci. Lo so, lei ha ragione. Tutti dovrebbero imparare l’inglese se vivono in questo Paese. Ma la questione non è se le future generazioni di immigranti impareranno o meno l’inglese. La questione è: come possiamo proporre una politica dell’immigrazione al contempo legale e sensibile? E se veniamo distratti da quel tipo di domande, credo che facciamo un cattivo servizio agli Americani”.

Ecco un bell’esempio di come si rifiuta in politica il ricorso a contesti che ci obbligherebbero ad accettare il contesto dell’avversario. E’ ben fatto: lo so, lei ha ragione, ma… e qui si dice quel che dobbiamo dire noi, dal nostro punto di vista, senza contestare l’argomento addotto dall’avversario. Anche adottando questa nuova strategia, Barack Obama ha vinto le elezioni alla Presidenza degli Stati Uniti. E, con ogni probabilità, anche incarnando una serie di narrazioni credibili per la maggioranza degli elettori che alla fine lo hanno scelto, prima nella contesa con Hillary Clinton e poi in quella con John McCain.
In sostanza, oltre che il programma e la delusione diffusa nei confronti dell’Amministrazione uscente, per Obama hanno giocato anche narrazioni vincenti ormai acquisite dagli americani che avevano avuto ed hanno per protagonisti cittadini afro-americani. Negli anni Duemila, molte volte Oprah Winfrey si è confermata come la personalità televisiva più amata.

Jamie Foxx in Ray

Nel 2005, la scelta popolare tra i film candidati all’Oscar cadde su Ray, la storia di Ray Charles, mentre l’attore più amato fu Jamie Foxx, proprio nel ruolo del cantante. Nel 2006 un altro nero, Tiger Woods, fu nominato Sportivo dell’anno, mentre secondo era Michael Jordan. Tra le donne, Venus e Serena Williams erano prima e seconda.
E da noi? Possibile che da così tanti anni all’esigenza di Nanni Moretti in Aprile (“D’Alema, dì qualcosa di sinistra? Anzi, dì qualcosa…”) non si riesca a dare risposta? La nuova Destra italiana è stata capace di sfruttare un sistema di frame creato con razionale pervicacia grazie soprattutto alla televisione, per far breccia nell’elettorato e spostare a destra l’asse della politica italiana.

One of the founders of Cognitive Models in the Social Sciences gives an interview with Harry Kreisler.  (BTW, I cite Kahneman here.)

http://www.nytimes.com/2008/10/28/opinion/28brooks.html?_r=1&scp=2&sq=&st=nyt&oref=slogin – free registration to read if not registered…

Go with the as postulated in this NYT.com article, there are four steps to every decision…

1. you perceive a situation
2. you think of possible courses of action
3. you calculate which course is in your best interest
4. you take the action

&^+%$!!)*?<#!

If only it were that simple.

Over the past few centuries, public policy pundits, talking heads and some academicians have presumed that step three was the most important. Social science disciplines are premised on that presumption as well; despite the ink used to propagate altruistism at every opportunity, people calculate and behave in their own self-interest.

Greenspan’s quoted in the above article made that clear for his reign and for the country. His comments aside, none of the steps above are worth a lot without the others.

Most of the processing takes place without literal awareness. We behave and when pressed for why, we generate a story that fits that situation and puts us in a virtuous light. We don’t really perceive all that well. Thus, the step that seems most simple is the most complex. Looking at and perceiving the world is an active process of symbol meaning-making that shapes and biases the rest of the decision-making chain.

Psychologists have been exploring our biases for four decades with the work of Amos Tversky and Daniel Kahneman, and also with work by people like Richard Thaler, Robert Shiller, John Bargh and Dan Ariely. Now Brooks would have it that it is time for the economists to contribute. Gasp!

The desperation of the day may mean a new wave of behavioral economists and others who are next to bring pop psychology to the realm of public policy. These are the same pundits that used their antiquated assumptions to provide plausible explanations for why so many others are wrong about risk behaviors and globalization implications.

Nassim Nicholas Taleb for instance. In his books “Fooled by Randomness” and “The Black Swan” he explains it all in equally simplistic manner as the four rules above. As an astute colleague pointed out bluntly, “we are asking the guy who coined the perception of “black swans” to predict black swans.” The irony is laughable. What gives a black swan example its value is that it is not obvious [read predictable]. While Taleb may have seen it coming, as stated in the above article, that precludes it from being an example of a “black swan” phenomenon. Irony for sure.

When Taleb gets on the philosophical diving board to spring into evolutionary causation decreeing that humanoids brains evolved to fit a less complex world I found myself gagging instead of gasping. His examples of the perceptual biases that distort our thinking are themselves century old prejudices.

1. Our tendency to see data that confirm our prejudices more vividly than data that contradict them

a. We recognize information due to its relation with exiting cues we have in our repertoire. We don’t see what we haven’t been reinforced to see; it is not self-deception any more than it is self enlightenment when we see what turns out to be correct. In that set of circumstances the correctness is not based on enlightenment but on relationships that were there all along but not focused on, recognized or reinforced by the environment.

b. That environment is the same one where superstition, myth, magic, mind and phenomenalism is considered valuable to be our “humanity” and, knock on wood, we sometimes guess right despite the reasons behind the guess.

2. Our tendency to overvalue recent events when anticipating future possibilities

a. the last 6 months is more like the next six months than the last 1000 years are like the next 6 months

3. Our tendency to spin concurring facts into a single causal narrative

a. if for no other reason, this site is the mainstay of the defeat of monocausality which haunts our culture, bolsters our superstitions and keeps us surprised at regular intervals

4. Our tendency to applaud our own supposed skill in circumstances when we’ve actually benefited from dumb luck.

a. We benefit from historical uniqueness and education that is more than smattered with scientific skepticism as opposed to boorish cynicism that ignores our strengths and panders to the voodoo in the caves.

b. See 1.-b above.

Errors of perception are everywhere when experimental analysis is NOT involved. Clearly, getting to our moon and beyond was due to experimental analysis and NOT interpretation of perceptions of pundits.

Without experimental analysis we’ll continually fail to perceive “what’s going on out there.” The relationships between a zillion things and another zillion things are to complex. While a four point decision tree helps us walk across the street in a small town, it is not the way to figure out how to navigate rules of this years tax code or interpret the Patriot Act I or II on any given Sunday. Who knew and who still knows which small events are linked to big disasters? Who knew that the mechanical Newtonian links were there as well as selected consequences of a billion factors coming together world [pick one] (cause – contribute – accompany) a social-political-economic unraveling? Experimental analysis was not involved. Interpretation of biases was.

Faulty perceptions are not the only reason or application for an experimental analysis. Relationships are complex, not caused by single small or an enormous events as you have been trained to think. We don’t have much training to recognize or understand what our own self-interests are in anything but localized strings of spatial-temporal events. Brooks’ towing with trusting government to become engaged in the process is folly. Just how much “help” can a country endure? What’s worse, it is lazy. Separating government and business is impossible but collusion is asking for our own demise handed to as a coupon toward irrelevance. While we regularly make poor decisions, the government is insensitive to making the correct one or those needing to be made in a timely fashion.

If you doubt that, don’t look in the rear view mirror as some would suggest. Follow the consequences of a potential decision and determine for yourself if you or an agent of an ideology is better suited to care for what is in your best interests. Government information feedback mechanisms are limited, broadly myopic, and mechanical; not timely. The very thing that got them away from the citizenry to be politicians has had ideology numb them contributing to an end to pragmatism. This bias, to be sure, is no better or worse than any other bias. They all can be replaced with an experimental analysis from science rather than the pop pap solutions we are offered.

As we’ve seen from recent crashes before the latest one this set of economic biases just keeps on giving. It keep on giving us the problems that government is content to continue to administer to; mindfulness, equality of everything not equal, brinkmanship over leadership and above, all, saying what works to get re-elected. As stated, this meltdown is a cultural event reminding us that we are perceptive beings, seeing things that aren’t there and not perceiving things that are there. (See previous blogs]

Ahora que está de moda hablar de la crisis y que se han puesto de moda los vídeos en los que grandísimos economistas explican la crisis de forma entendible, yo me he acordado de mi amigo Daniel Kahneman.

Daniel Kahneman es un psicólogo que recibió el Nobel de Economía. hace seis años, en 2002. ¿Quéee? Espera, voy a darle al REPLAY: Daniel Kahneman es un PSICOLOGO que recibió en nobel de ECONOMIA (y dicho sea de paso, uno de los personajes que más admiro). ¿Asombrado?

Junto con un señor llamado Vernon Smith, Daniel estudió los aspectos psicólogicos que se generan, participan e influyen en la toma de decisiones bajo incertidumbre que implican riesgos. Y es que, como muy bien se dice en este vídeo, La Bolsa está compuesta de la gente más aguda y sofisticada, de las mayores cabezas pensantes del mundo… DIRIGIDAS POR SENTIMIENTOS.

¡¡Chan!!

Es decir, que los sentimientos influyen en la toma de decisiones que los señores de Wall Street hacen. Y en el Gobierno de Islandia. Y en los señores de ING. Daniel y Vernon nos dicen que sí, que tomamos decisiones influidas por variables que no se tienen en cuenta en la teoria de la probabilidad, y entonces empiezan a hablarnos de la aversión a la pérdida…

Aprende más de Kahneman aquí, o leyendo su artículo original (en PDF).

La psicología está en todas partes. Un psicólogo ganando un nobel de economía me hace sentirme orgullosa como si lo hubiera ganando yo, y me olvido, por un segundo, de que todavía hay burrhus por ahí negando la existencia de la mente, los sentimientos o… todo lo que no sea científicamente analizable.

“Dadme una docena de niños sanos, bien formados, para que los eduque, y yo me comprometo a elegir uno de ellos al azar y adiestrarlo para que se convierta en un especialista de cualquier tipo que yo pueda escoger -médico, abogado, artista, hombre de negocios e incluso mendigo o ladrón-, prescindiendo de su talento, inclinaciones, tendencias, aptitudes, vocaciones y raza de sus antepasados“

Perla de Watson.

How good is your medical judgement? Try this.

A 55-year old had a Pulmonary Embolism documented angiographically 10 days after a Cholecystectomy.

Can you rank the following in terms of the probability that they will be among the conditions experienced by the patient. Use 1 for most likely and 6 for least likely.

• Dyspnoea and Hemiparesis
• Calf pain
• Pleuritic chest pain
• Syncope and Tachycardia
• Hemiparesis
• Haemoptysis

91% of doctors ranked Dyspnoea and Hemiparesis as more likely than Hemiparesis alone.

This question was put to a group of doctors in the eighties by Kahneman and Tversky.

The key here is that hemiparesis is not representative of the patients condition yet dyspnoea is.

They reasoned that if the details we are given fit our mental picture of something, then the more details in a scenario, the more real it seems and hence the more probable we consider it to be.

This is in violation of the first law of probibility (the conjunction rule);

The probability that two events will both occur can never be greater than the probability that each will occur individually

Thank you to Lionel Richtea for pointing out the glaring error in my first attempt at this post.

CLICK HERE FOR A GOOD EXPLANATION OF THE CONJUNCTION RULE.

Ich möchte heute einen bisher noch nicht besprochenen Effekt darstellen, die Repräsentativitätsheuristik (Representativeness)

Bei der sog. Repräsentativitätsheuristik wird die Eintrittswahrscheinlichkeit repräsentativer Ereignisse gegenüber weniger repräsentativen überschätzt. Dies beeinflusst uns bei der Informationsverarbeitung und Entscheidung, weil wir Ereignisse, die uns repräsentativer erscheinen, für wahrscheinlicher halten, als andere.

Verantwortlich für diese Fehleinschätzung ist unter anderem die Ähnlichkeit der Stichprobe mit der Population (statistisch beobachtete Grundgesamtheit)

Hierbei handelt es sich um einen Vergleich der zufällig gewählten Stichprobe mit der Grundgesamtheit. Entspricht das Auftreten der Stichprobe nicht den Erwartungen, wird dieses Ereignis unterschätzt und andere im Gegensatz dazu überschätzt.

Hier ein Beispiel der Wissenschaftler Kahneman und Tversky zur Veranschaulichung:

In einer Befragung aller Familien einer Stadt mit sechs Kindern ergab sich bei 72 Familien folgende Geburtenfolge:

Variante 1: M J M J J M (M = Mädchen, J = Junge)

Den Probanden der Studie wurde eine zweite Geburtenfolge gezeigt und sie sollten einschätzen, auf wie viele Familien sie zutreffen könnte:

Variante 2: J M J J J J

Etwa 80 Prozent schätzten die erste Variante wahrscheinlicher ein, als die zweite.

Beide Geburtenfolgen sind statistisch gleich wahrscheinlich. Da die zweite Variante nicht repräsentativ in Bezug auf die Grundgesamtheit (alle Familien mit sechs Kindern) ist, wird sie unterschätzt, bzw.<!–[if supportFields]>xe “bzw.”<![endif]–><!–[if supportFields]><![endif]–>die erste Variante überschätzt.

Aus der Repräsentativitätsheuristik lassen sich mehrere Fehler ableiten:

• die bereits hier vorgestellte Gambler’s Fallacy
• die Conditional Probability Fallacy, bei der Ursache und Wirkung vertauscht werden
• die Conjunction Fallacy, bei die Wahrscheinlichkeit verbundener Ereignisse übrschätzt wird

The ways we think about money and make financial decisions are typically far from rational.   We get upset when we find out that another person is getting a better deal, despite the fact that we were perfectly happy a minute ago.  We spend more for well-known brands that have no difference in real quality.  We invest in punishing others for perceived “violations in justice” despite the fact that there are only negative consequences for ourselves.  We spend a lot of money on things we want that, in the end, don’t make any difference in our level of happiness.

Despite the considerable evidence that we think and act irrationally with money, most of this irrationality makes much more sense when you look at our behavior from the perspective of our long history as small bands of hunter-gatherers operating in an environment of limited resources and high risk.   We just haven’t fully adapted to the relatively recent development of our consumer-trader society.

If you’re looking for a good introduction to behavioral and evolutionary economics leading up to the emerging field of neuroeconomics, check out Michael Shermer’s The Mind of the Market.  The Mind of the Market is an easy to read summary of some of the work of many of the brilliant contributors to this field including:  Daniel Kahneman and Amos Tversky’s groundbreaking work in behavioral economics,  Leon Festinger’s study of cognitive dissonance,  John Nash on the Nash Equilibrium,  Read Montague’s work on decision making,  Daniel Gilbert’s study of happiness and the problem of affective forecasting, and more…

For a short teaser, read Shermer’s recent essay:  Why People Believe Weird Things About Money

Most business leaders make the assumption that their customers are rational decision makers.  As a result, they make investments in developing products and services that have rational benefits.  Much of our work with clients involves helping them understand how to influence more powerful customers experiences by designing what they do from the seemingly irrational “mental model of the customer.”   If you’re interested in more perspective on this, check out the following Customer Innovations blog posts:

• Designing for Customers’ Reactive, Deliberative, and Reflective Experiences
• Optimizing the Most Critical Elements of the Customer Experience:  Customer Choices
• Novelty Seeking and the Design of Differentiated Customer Experiences
• Cognitive Ergonomics: How Customers React to Violations of Justice
• Cognitive Ergonomics: Designing “Socially Influential” Experiences
• Cognitive Ergonomics: Framing and Priming the Customer Experience
• Miswanting and the Pursuit of Unhappiness

The ways we think about money and make financial decisions are typically far from rational.   We get upset when we find out that another person is getting a better deal, despite the fact that we were perfectly happy a minute ago.  We spend more for well-known brands that have no difference in real quality.  We invest in punishing others for perceived “violations in justice” despite the fact that there are only negative consequences for ourselves.  We spend a lot of money on things we want that, in the end, don’t make any difference in our level of happiness.

Despite the considerable evidence that we think and act irrationally with money, most of this irrationality makes much more sense when you look at our behavior from the perspective of our long history as small bands of hunter-gatherers operating in an environment of limited resources and high risk.   We just haven’t fully adapted to the relatively recent development of our consumer-trader society.

If you’re looking for a good introduction to behavioral and evolutionary economics leading up to the emerging field of neuroeconomics, check out Michael Shermer’s The Mind of the Market.  The Mind of the Market is an easy to read summary of some of the work of many of the brilliant contributors to this field including:  Daniel Kahneman and Amos Tversky’s  groundbreaking work in behavioral economics,  Leon Festinger’s study of cognitive dissonance,  John Nash on the Nash Equilibrium,  Read Montague’s work on decision making,  Daniel Gilbert’s  study of happiness and the problem of affective forecasting, and more…

For a short teaser, read Shermer’s recent essay:  Why People Believe Weird Things About Money

Most business leaders make the assumption that their customers are rational decision makers.  As a result, they make investments in developing products and services that have rational benefits.  Much of our work with clients involves helping them understand how to influence more powerful customers experiences by designing what they do from the seemingly irrational “mental model of the customer.”   If you’re interested in more perspective on this, check out the following Customer Innovations blog posts:

• Designing for Customers’ Reactive, Deliberative, and Reflective Experiences
• Optimizing the Most Critical Elements of the Customer Experience:  Customer Choices
• Novelty Seeking and the Design of Differentiated Customer Experiences
• Cognitive Ergonomics: How Customers React to Violations of Justice
• Cognitive Ergonomics: Designing “Socially Influential” Experiences
• Cognitive Ergonomics: Framing and Priming the Customer Experience
• Miswanting and the Pursuit of Unhappiness

I’ve gotten accustomed to taking my car to the Jiffy Lube near my house.  Over the 30 years that I’ve been driving, I’ve had the full range of good and bad experiences with auto service shops.  However, this Jiffy Lube has a distinctive and effective way of interacting with me regarding the cost of my service.  At the end of each visit, they bring me over to a terminal that we can look at together – side by side; they walk me through each of the service elements that were performed along with the cost of each service; then they apply a series of discounts to the individual services, as well as, loyalty discounts that consistently bring my total cost down to about 60-70% of sum of the individually itemized costs.   I have always walked out of that particular Jiffy Lube feeling like I’ve saved money and that they appreciate my business.    I’ve also always walked out feeling like many of the companies I advise could learn a lot from that relatively simply but very well designed and deliberate interaction.

This interaction is an example of category of experiential design levers called framing effects.  Rather than just presenting the price, Jiffy Lube framed it in a way that highly influenced my experience of saving money.  There are a wide set of framing effects that influence how people interpret and evaluate their experiences.  For example, consider the following two scenarios:

1. You live around the corner from an electronics store that carries the new computer speakers you’ve been looking at for $100.  You also learn that a discounter, located ten miles from your house, has a special on the same speakers for half price: $50. Do you drive the 10 miles?
2. You live near an electronics store that carries the new computer you’ve wanted for $2000. Ten miles from your house, another store is carrying the same computer for $1950… a savings of $50.  Do you drive the 10 miles?

As you might guess, research has shown that many customers who would make the drive for scenario 1 might not for scenario 2.  On a rational level, this makes little sense since the value of the drive is identical:  $50.  However, a $50 savings on a $100 item is framed differently than a $50 savings on the much more expensive item.

If you consider how we process the experiences we have, it’s easy to see that it’s far from rational or logical.  Our experiences are highly influenced by subconscious shortcuts that have an enormous influence on how we think, feel, and act.  Many of these shortcuts lead to apparent contradictions with what you’d expect from a more rational decision maker.  This post will cover some of the tools for positively influencing both the quality and profitability of the customers’ experience.

Pioneering behavioral economists Daniel Kahneman and Amos Tversky conducted extensive research into framing effects.  One of the other frames they studied involves loss aversion.  For example, if you were offered a gamble with a 10% chance of winning $95 and a 90% chance of losing $5… would you take it?  Most people would not.  Now suppose you were offered the chance to buy a $5 lottery ticket for a 10% chance of winning $100.  Many of the people that rejected the first alternative would accept the second despite the fact that the expected value of each alternative is exactly the same:  $5.  However, the alternative that involves voluntarily paying $5 rather than taking a chance of “losing” $5 is framed differently.

Loss-aversion framing also contributes to the fact that many customers do not make purely rational decisions regarding insurance.  For example, the expected value of many insurance policies is generally in the neighborhood of 50-60%.  You might compare this to the return on putting your money into a slot machine… an expected value of 90%.  In general, the most economically rational decision is to self-insure to the extent possible and only buy insurance as necessary to cover catastrophic events.

In addition to framing effects, another influence lever in the design of the customer experience is priming.  Priming involves activating an association in memory just before a person completes an action or task.  In an interesting experiment, also conducted by Kahneman and Tversky, subjects were asked to provide the last four digits of their social security number.  They were then asked to estimate the number of doctors in Manhattan.  Very surprisingly, the estimates that subjects gave were positively correlated with the last four digits of their social security number; people with high social security numbers gave higher estimates and people with lower social security numbers gave lower estimates.

In a similar experiment, subjects were asked the last two digits of their social security number and then asked what they would be willing to pay for a consumer product (e.g., bottle of wine, wireless computer keyboard, video game).  Similarly, the price customers were willing to pay was positively correlated with the (random) digits of the customers’ social security number.  For example, subjects with social security numbers in the bottom 20% priced a bottle of Cotes du Rhone wine at $8.64 versus subjects with social security numbers in the top 20% who priced the same bottle at $27.91.  (See: “Tom Sawyer and the Construction of Value” by Dan Ariely, George Lowenstein, and Drazen Prelec).

Good sales people understand how priming creates an “anchor point” that affects a customer’s subsequent decisions.  If I’m selling men’s suits, the first suit I’ll show a customer will be well above the price I’d expect the customer to pay.  As I show the customer that suit, I’ll make sure the customer knows that I’ll find something that meets their needs, so as not to scare them away.  However, in most cases, the higher the price of the first item I show, the higher the customer will end up paying for the item they eventually choose.

In working with a leading retailer, we looked at the impact of signage on drawing customers into the store and influencing their eventual purchase.  We found that signs signaling a lower price at the store entrance would draw customers into the store while progressively higher priced signs as the customer moved further into the store increased the chances that customers would be willing to pay for higher priced items.

Several years ago, I had the chance to work with Christine Boskoff, who was one of the most successful high-altitude mountain climbers in the world and the owner of the leading outdoor adventure travel company named Mountain Madness.  Her question was how to improve word of mouth about Mountain Madness in order to attract new clients.  The recommendation I developed with her was that, on the last day of each trip, there should be a final celebration involving a ceremonial round of “storytelling.”  In this storytelling ceremony, each participant would have a chance to share the personal story of their adventure, what it meant to them, and what their most positive takeaways were.  The act of telling their own story, in addition to listening to the stories of others, has a powerful effect to prime and prepare clients with the “personal legends” they’ll share with others when they get home.  In the course of telling and retelling these legendary stories the most compelling aspects are typically “sharpened” while any of the less positive or inconsistent aspects are “leveled” in order to fit with a more compact storyline.

Framing and priming effects operate at a predominantly subconscious, reactive level and can have a significant impact on the perceived quality and actual profitability of the customer experience.  For more information on how customer process the experiences they have see:   Designing for Customers’ Reactive, Deliberative, and Reflective Experiences.

Before I go, I’ll leave you with one final priming example:

You have exactly five seconds, not a second more, to multiply:

2 x 3 x 4 x 5 x 6 x 7 x 8

Write down your answer.  Now, ask a friend to multiply, again in exactly five seconds:

8 x 7 x 6 x 5 x 4 x 3 x 2

Now, compare the two answers.  Besides the fact that you both got the answer wrong (the answer is 40,320), you should notice that your answer is smaller than your friends.  If you’re like most people, you started out multiplying 2 x 3 x 4 to get 24… x 5 to get 120… then ran out of time and had to quickly estimate the rest… but didn’t multiply by enough.  Your estimate was primed by the 120.  On the other hand, your friend probably started multiplying 8 x 7 to get 65… x 6 to get 390… before running out of time and having to quickly estimate the rest… but he too didn’t multiply by enough.  His estimate was primed by the 390.

I’ve gotten accustomed to taking my car to the Jiffy Lube near my house.  Over the 30 years that I’ve been driving, I’ve had the full range of good and bad experiences with auto service shops.  However, this Jiffy Lube has a distinctive and effective way of interacting with me regarding the cost of my service.  At the end of each visit, they bring me over to a terminal that we can look at together – side by side; they walk me through each of the service elements that were performed along with the cost of each service; then they apply a series of discounts to the individual services, as well as, loyalty discounts that consistently bring my total cost down to about 60-70% of sum of the individually itemized costs.   I have always walked out of that particular Jiffy Lube feeling like I’ve saved money and that they appreciate my business.    I’ve also always walked out feeling like many of the companies I advise could learn a lot from that relatively simply but very well designed and deliberate interaction.

This interaction is an example of category of experiential design levers called framing effects.  Rather than just presenting the price, Jiffy Lube framed it in a way that highly influenced my experience of saving money.  There are a wide set of framing effects that influence how people interpret and evaluate their experiences.  For example, consider the following two scenarios:

1. You live around the corner from an electronics store that carries the new computer speakers you’ve been looking at for $100.  You also learn that a discounter, located ten miles from your house, has a special on the same speakers for half price: $50. Do you drive the 10 miles?
2. You live near an electronics store that carries the new computer you’ve wanted for $2000. Ten miles from your house, another store is carrying the same computer for $1950… a savings of $50.  Do you drive the 10 miles?

As you might guess, research has shown that many customers who would make the drive for scenario 1 might not for scenario 2.  On a rational level, this makes little sense since the value of the drive is identical:  $50.  However, a $50 savings on a $100 item is framed differently than a $50 savings on the much more expensive item.

If you consider how we process the experiences we have, it’s easy to see that it’s far from rational or logical.  Our experiences are highly influenced by subconscious shortcuts that have an enormous influence on how we think, feel, and act.  Many of these shortcuts lead to apparent contradictions with what you’d expect from a more rational decision maker.  This post will cover some of the tools for positively influencing both the quality and profitability of the customers’ experience.

Pioneering behavioral economists Daniel Kahneman and Amos Tversky conducted extensive research into framing effects.  One of the other frames they studied involves loss aversion.  For example, if you were offered a gamble with a 10% chance of winning $95 and a 90% chance of losing $5… would you take it?  Most people would not.  Now suppose you were offered the chance to buy a $5 lottery ticket for a 10% chance of winning $100.  Many of the people that rejected the first alternative would accept the second despite the fact that the expected value of each alternative is exactly the same:  $5.  However, the alternative that involves voluntarily paying $5 rather than taking a chance of “losing” $5 is framed differently.

Loss-aversion framing also contributes to the fact that many customers do not make purely rational decisions regarding insurance.  For example, the expected value of many insurance policies is generally in the neighborhood of 50-60%.  You might compare this to the return on putting your money into a slot machine… an expected value of 90%.  In general, the most economically rational decision is to self-insure to the extent possible and only buy insurance as necessary to cover catastrophic events.

In addition to framing effects, another influence lever in the design of the customer experience is priming.  Priming involves activating an association in memory just before a person completes an action or task.  In an interesting experiment, also conducted by Kahneman and Tversky, subjects were asked to provide the last four digits of their social security number.  They were then asked to estimate the number of doctors in Manhattan.  Very surprisingly, the estimates that subjects gave were positively correlated with the last four digits of their social security number; people with high social security numbers gave higher estimates and people with lower social security numbers gave lower estimates.

In a similar experiment, subjects were asked the last two digits of their social security number and then asked what they would be willing to pay for a consumer product (e.g., bottle of wine, wireless computer keyboard, video game).  Similarly, the price customers were willing to pay was positively correlated with the (random) digits of the customers’ social security number.  For example, subjects with social security numbers in the bottom 20% priced a bottle of Cotes du Rhone wine at $8.64 versus subjects with social security numbers in the top 20% who priced the same bottle at $27.91.  (See: “Tom Sawyer and the Construction of Value” by Dan Ariely, George Lowenstein, and Drazen Prelec).

Good sales people understand how priming creates an “anchor point” that affects a customer’s subsequent decisions.  If I’m selling men’s suits, the first suit I’ll show a customer will be well above the price I’d expect the customer to pay.  As I show the customer that suit, I’ll make sure the customer knows that I’ll find something that meets their needs, so as not to scare them away.  However, in most cases, the higher the price of the first item I show, the higher the customer will end up paying for the item they eventually choose.

In working with a leading retailer, we looked at the impact of signage on drawing customers into the store and influencing their eventual purchase.  We found that signs signaling a lower price at the store entrance would draw customers into the store while progressively higher priced signs as the customer moved further into the store increased the chances that customers would be willing to pay for higher priced items.

Several years ago, I had the chance to work with Christine Boskoff, who was one of the most successful high-altitude mountain climbers in the world and the owner of the leading outdoor adventure travel company named Mountain Madness.  Her question was how to improve word of mouth about Mountain Madness in order to attract new clients.  The recommendation I developed with her was that, on the last day of each trip, there should be a final celebration involving a ceremonial round of “storytelling.”  In this storytelling ceremony, each participant would have a chance to share the personal story of their adventure, what it meant to them, and what their most positive takeaways were.  The act of telling their own story, in addition to listening to the stories of others, has a powerful effect to prime and prepare clients with the “personal legends” they’ll share with others when they get home.  In the course of telling and retelling these legendary stories the most compelling aspects are typically “sharpened” while any of the less positive or inconsistent aspects are “leveled” in order to fit with a more compact storyline.

Framing and priming effects operate at a predominantly subconscious, reactive level and can have a significant impact on the perceived quality and actual profitability of the customer experience.  For more information on how customer process the experiences they have see:   Designing for Customers’ Reactive, Deliberative, and Reflective Experiences.

Before I go, I’ll leave you with one final priming example:

You have exactly five seconds, not a second more, to multiply:

2 x 3 x 4 x 5 x 6 x 7 x 8

Write down your answer.  Now, ask a friend to multiply, again in exactly five seconds:

8 x 7 x 6 x 5 x 4 x 3 x 2

Now, compare the two answers.  Besides the fact that you both got the answer wrong (the answer is 40,320), you should notice that your answer is smaller than your friends.  If you’re like most people, you started out multiplying 2 x 3 x 4 to get 24… x 5 to get 120… then ran out of time and had to quickly estimate the rest… but didn’t multiply by enough.  Your estimate was primed by the 120.  On the other hand, your friend probably started multiplying 8 x 7 to get 65… x 6 to get 390… before running out of time and having to quickly estimate the rest… but he too didn’t multiply by enough.  His estimate was primed by the 390.

Yesterday I came across A Short Course in Thinking About Thinking by Daniel Kahneman. What a fascinating resource! I was searching for “metacognition” but what I found there is relevant to so much of what we’re doing in Kusasa. For instance, in session one Kahneman talks about “inside” and “outside” views of planning or problem solving…

The inside view is looking at your problem and trying to estimate what will happen in your problem. The outside view involves making that an instance of something else—of a class. When you then look at the statistics of the class, it is a very different way of thinking about problems. And what’s interesting is that it is a very unnatural way to think about problems, because you have to forget things that you know—and you know everything about what you’re trying to do, your plan and so on— andto look at yourself as a point in the distribution is a very un-natural exercise; people actually hate doing this and resist it.

As a problem solving strategy “taking the outside view” is itself an instance of a broader strategy: “solving a similar problem.” As it happens this broad strategy is one of George Polya’s problem solving heuristics. “Inside and outside views” will be the subject of one of our Kusasa modules.

In session five Kahneman talks about attribute substitution as it happens in optical illusions and many other contexts. Alan Kay discusses illusions as examples of “the world is not as it seems” in his paper on Children Learning by Doing (PDF). Why is this important? Because, as Alan explains, we “want to help [children] escape from the very simple perception of the world that their senses (including their ‘commonsense’) provides them.” Optical illusions, attribute substitution and other cognitive biases such as anchoring will be the subjects of several Kusasa modules.

If you want to further explore “inside and outside views” consider Kahneman’s article in the Harvard Business Review. It’s $6.50 but well worth it. And you’ll find more on “attribute substitution” in his Nobel Prize lecture.

Tras la entrada mesiánica de ayer, (reconozco que tal vez demasiado efectista), uno comienza a pensar que su intuición junta las piezas del puzzle antes que su razón. (Al respecto, os recomiendo leer el resumen de un curso impartido por el nobel de economía Danny Kahneman para Edge)

A propósito de lo de ayer, dos entradas interesantes en el blog de Marketing del IE: “Vodafone y Telefonica lanzan la publicidad del móvil” (28 Nov07 de José Ignacio Gafo Gómez-Zamalloa), y “GRAN POTENCIALIDAD DE LA PUBLICIDAD AL MÓVIL EN ESPAÑA” (30 Nov07 de Manuel Angel Alonso Coto).

El concepto de “Coopetition” o cooperación competitiva no es nuevo, aunque el término como nos recordaba el profesor José Ignacio Gafo  se inventó en 1997.

Existen diferentes formas de cooperación entre competidores. Unas persiguen defender objetivos, intereses o una cierta posición de privilegio común en el mercado. Este sería el caso de la tan comentada SGAE (Sociedad General de Autores y Editores).

Existen otros tipos de cooperación que buscan crear formas nuevas de valor a partir de la unión e integración de los competidores de un mercado. Este sería el caso de VISA, del que ya hablamos en Julio a partir de las reflexiones de su CEO fundador Dee Hock. Sin duda, es la más compleja de lograr, y se fundamenta en el principio de común acuerdo sobre unas reglas justas de funcionamiento, que al mismo tiempo proporcionan suficiente flexibilidad a sus miembros como para poder seguir compitiendo entre ellos.

El mobile marketing tampoco es nuevo. Aquellos que hayan tenido una cuenta con Bankinter, saben de sus SMS, que se adaptan dinámicamente a la composición de los productos contratados y a eventos puntuales en función del contexto, ofreciendo productos y servicios que pueden ser útiles a cada uno de nosotros en cada momento. (Unas de las implantaciones del famoso concepto de marketing “one to one” y “moment to moment”).

Tratar de ver estos acuerdos como una forma más de proteger los mercados locales de telecomunicaciones frente a las posiciones cada vez más ofensivas de los grandes proveedores de contenidos y servicios de internet norteamericanos, creo que es quedarse corto. Y lo creo porque existen posibilidades de ir mucho más allá. Y estoy convencido que hay gente en las Telcos que lo sabe.

Google ha demostrado que es posible rentabilizar de forma lucrativa el valor de la información de cada uno de nosotros, y además es posible hacerlo de forma que los usuarios no sientan invadida su intimidad, o al menos sientan que lo que ganan es mucho más de lo que pierden, lo cuál no es sencillo. Google y sus redes estratégicas de innovación de nuevos servicios y soluciones, así como de nuevas inversiones, han mostrado nuevas e inteligentes formas de competir.

Tal vez uno de los problemas de esta estrategia, como ya ha comentado Julián alguna vez, es que la complejidad de la organización aumenta exponencialmente, lo cual plantea nuevos retos desde el punto de vista del management clásico que estoy seguro están afrontando.

Por contra, una de las principales virtudes de las telcos es la gestión de los tiempos, y el saber cuándo y en qué momento se debe invertir para maximizar los rendimientos de sus plataformas. El alcance de su estrategia y las opciones que se abren en el futuro la veremos seguramente durante el próximo año.

En otro ámbito, Chris Anderson, autor del célebre Long Tail, promociona ya su nuevo libro que tiene previsto salir a la luz a mediados del próximo año con el título “Free“. A propósito del libro, Chris ha escrito un artículo en la revista Economist titulado “Freeconomics“. En el artículo Chris desarrolla el concepto de Economía de la Abundancia, explicando cómo la evolución del precio unitario de capacidad de proceso de los ordenadores, de unidad de almacenamiento digital, de unidad de ancho de banda y de unidad de energía eléctrica, los llevan a un punto de ruptura que permite su adopción masivo en todo tipo de soluciones, lo que está permitiendo ofrecer servicios masivos gratis a cambio de desarrollar nuevas fuentes de ingresos. Vamos una especie de dumping en toda regla contra el que es difícil de competir si no se está preparado. Esta es la propuesta de Google y esta es la defensa de las Telcos.

¿Pero os imagináis qué sería capaz de desarrollar Google si estuviese en la posición de las Telcos?.