Gut Decisions

Gut Decisions

“Although about half of professional decisions in large companies are gut decisions, it would probably not go over well if a manager publicly admitted, I had a hunch. In our society, intuition is suspicious. For that reason, managers typically hide their intuitions or have even stopped listening to them,” Gerd Gigerenzer writes in Risk Savvy.

 

The human mind evolved first in small tribal bands trying to survive in a dangerous world. As our tribes grew, our minds evolved to become more politically savvy, learning to intuitively hide our selfish ambitions and appear honest and altruistic. This pushed our brains toward more complex activity, which took place outside our direct consciousness, hiding in gut feelings and intuitions. Today however, we don’t trust those intuitions and gut decisions, even though they never left us.

 

We do have good reason to discount intuitions. Our minds did not evolve to serve us perfectly in a complex, data rich world full of uncertainty. Our brains are plagued by motivated reasoning, biases, and cognitive limitations. Making gut decisions can lead us vulnerable to these mental challenges, leading us to distrust our intuitions.

 

However, this doesn’t mean we have escaped gut decisions. Gerd Gigerenzer thinks that is actually a good thing, especially if we have developed years of insight and expertise through practice and real life training. What Gigerenzer argues is that we still make many gut decisions in areas as diverse as vacation planning, daily exercise, and corporate strategies. We just don’t admit we are making decisions based on intuition rather than careful statistical analysis. Taking it a step further, Gigerezner suggests that most of the time we make a decision at a gut level, and produce reasons after the fact.” We rationalize and use motivated reasoning to explain why we made a decision and we try to deceive ourselves to believe that we always intended to do the rational calculation first, and that we really hadn’t made up our mind until after we had done so.

 

Gigerenzer suggests that we acknowledge our gut decisions. Ignoring them and pretending they are not influential wastes our time and costs us money. An executive may have an intuitive sense of what to do in terms of a business decision, but may be reluctant to say they made a decision based on intuition. Instead, they spend time doing an analysis that didn’t need to be done. They create reasons to support their decision after the fact, again wasting time and energy that could go into implementing the decision that has already been made. Or an executive may bring in a consulting firm, hoping the firm will come up with the same answer that they got from their gut. Time and money are both wasted, and the decision-making and action-taking structures of the individual and organization are gummed up unnecessarily. Acknowledging gut decisions and moving forward more quickly, Gigerenzer seems to suggest, is better than rationalizing and finding support for gut decisions after the fact.
A Bias Toward Complexity

A Bias Toward Complexity

When making predictions or decisions in the real world where there are many variables, high levels of uncertainty, and numerous alternative options to chose from, using a simple rule of thumb can be better than developing complex models for predictions. The intuitive sense is that the more complex our model the more accurately it will reflect the real complexity of the world, and the better job it will do with making a prediction. If we can see that there are multiple variables, then shouldn’t our model capture the different alternatives for each of those variables? Wouldn’t a simple rule of thumb necessarily flatten many of the alternatives for those variables, failing to take into consideration the different possibilities that exist? Shouldn’t a more complex model be better than a simple heuristic?

 

The answer to these questions is no. We are biased toward complexity for numerous reasons. It feels important to build a model that tries to account for every possible alternative for each variable, we believe that always having more information is always good, and we want to impress people by showing how thoughtful and considerate we are. Creating a model that accounts for all the different possibilities out there fits those preexisting biases. The problem, however, is that as we make our model more complex it becomes more unstable.

 

In Risk Savvy, Gerd Gigerenzer explains what happens with variance and our models by writing, “Unlike 1/N, complex methods use past observations to predict the future. These predictions will depend on the specific sample of observations it uses and may therefore be unstable. This instability (the variability of these predictions around their mean) is called variance. Thus, the more complex the method, the more factors need to be estimated, and the higher the amount of error due to variance.”  (Emphasis added by me – 1/N is an example of a simple heuristic that Gigerenzer explains in the book.)

 

Our bias toward complexity can make our models and predictions worse when high levels of uncertainty with many alternatives and relatively limited amounts of data exist. If we find ourselves in the opposite situation, where there is low uncertainty, few alternatives, and a plethora of data, then we can use very complex models to make accurate predictions. But when we are in the real world, like making stock market or March Madness predictions, then we should rely on a simple rule of thumb. The more complex our model, the more opportunities for us to misestimate a given variable. Rather than having one error be offset by numerous other point estimates within our model to reduce the cost of a miscalculation, our model ends up creating more variance and a greater likelihood that our prediction will be further from reality than if we had flattened the variables with a simple heuristic.
Defensive Decision-Making - Joe Abittan

Defensive Decision-Making

One of the downfalls of a negative error cultures is that people become defensive over any mistake they make. Errors and mistakes are shamed and people who commit errors do their best to hide them or deflect responsibility. Within negative error cultures you are more likely to see people taking steps to distance themselves from responsibility before a decision is made, practicing what is called defensive decision-making.

 

Gerd Gigerenzer expands on this idea is his book Risk Savvy by writing, “defensive decision making [is] practiced by individuals who waste time and money to protect themselves at the cost of others, including their companies. Fear of personal responsibility creates a market for worthless products delivered by high-paid experts.”

 

Specifically, Gigerenzer writes about companies that hire expensive outside experts and consultants to make market predictions and help improve company decision-making. The idea is that individual banks, corporations, and sales managers can’t accurately know the state of a market as well as an outside expert whose job it is to study trends, talk to market actors, and understand how the market relates to internal and external pressures. The problem, as Gigerenzer explains, is that even experts are not very good at predicting the future of a market. There is simply too much uncertainty for anyone to be able to say that market trends will continue, that a shock is coming, or that a certain product or service is about to take off. Experts make these types of predictions all the time, but evidence suggests that their predictions are not much better than just throwing dice.

 

So why do companies pay huge fees, sit through lengthy meetings, and spend time trying to understand and adapt to the predictions of experts? Gigerenzer suggests that it is because individuals within the company are practicing defensive decision-making. If you are a sales manager and you make a decision to sell to a particular market with a new approach after analyzing performance and trends of your own team, then you are responsible for the outcome of the new approach and strategy. If it works, you will look great, but if it fails, then you will be blamed for not understanding the market, for failing to see the signs that indicated your plan wasn’t going to succeed, and for misinterpreting past trends. However, if a consultant suggested a course of action, presented your team with a great visual presentation, and was certain that they understood the market, then you escape blame when the plan doesn’t work out. If even the expert couldn’t see what was going to happen, then how could you be blamed for a plan not working out?

 

Defensive decision-making is good for the individual, but bad for the larger organization that the individual is a part of. Companies would be better off if they made decisions quicker, accepted risk, and could openly evaluate success and failure without having to place too much blame on individuals. Companies could learn more about their errors and could do a better job identifying and promoting talent. Defensive decision-making is expensive, time consuming, and outsources blame, preventing companies and organizations from actually learning and improving their decision-making over the long run.
A Useful Myth

A Useful Myth

Autonomy, free will, and self-control combine to create a useful myth. The myth is that we control our own destinies, that we are autonomous actors with rights, freedoms, and the opportunity to improve our lives through our own effort. The reality is that the world is incredibly complex, that we don’t get to chose our genes, our parents, or the situations in life that we are born and raised within. A huge number of factors based on random chance and luck contribute to whether we are successful or not, but nevertheless, the belief that we are autonomous actors with control over our own free will is still a useful myth.

 

In Risk Savvy Gerd Gigerenzer writes, “people who report more internal control tend to fare better in life than those who don’t. They play a more active role in their communities, take better care of their health, and get better jobs. We may have no control about whether people find our clothes or skills or appearance attractive. But we do have control over internal goals such as acquiring languages, mastering a musical instrument, or taking responsibility for small children or our grandparents.”

 

This quote shows why the idea of internal control and agency is such a useful myth. If we believe we have the power to shape our lives for the better, then we seem to be more likely to work hard, persevere, and stretch for challenging goals. A feeling of helplessness, as though we don’t have control, likely leads to cynicism and defeatism. Why bother trying if you and your actions won’t determine the success or failure you experience in life?

 

This myth is at the heart of American meritocracy, but it is important to note that it does appear to be just a myth. EKGs can detect electrical activity in the brain and predict an action before a person becomes aware of a conscious desire to perform an action. Split brain experiments and the research of Kahneman and Tversky show that our brains are composed of multiple competing systems that almost amount to separate people and personalities all within our singular consciousness. And as I wrote earlier, luck is a huge determining factor in whether we have the skills and competencies for success, and whether we have a supportive environment and sufficient opportunities to master those skills.

 

Recently, on an episode of Rationally Speaking, Julia Galef interviewed Michael Sandel about our meritocracy. One fear that Sandel has about our system of meritocracy is that people who succeed by luck and chance believe that they succeeded because of special qualities or traits that they possess. Meanwhile, those who fail are viewed as having some sort of defect, a mindset that people who fail or live in poverty may come to believe is true and embrace, thus creating another avenue for defeatism to thrive.

 

If internal control is a useful myth, it is because it encourages action and flourishing for individuals. My solution therefore is to blend the two views, the view of internal agency and the view of external forces shaping the future we have. These are contradictory views on the surface, but I believe they can be combined and live in harmony (especially given the human ability to peacefully and ignorantly live with contradictory beliefs). We need to believe we have agency, but also believe that success is essentially a matter of luck and that we are dependent on society and others to reach great heights. This should encourage us to apply ourselves fully, but to be humble, and take steps to help ensure others can also apply themselves fully to reach greater levels of success. When people fail, we shouldn’t look at them as morally inept, as lacking skills and abilities, but as people who happened to end up in a difficult place. We should then take steps to help improve their situations and to give them more opportunities to find the space that fits their skills and abilities for growth and success. Internal control can still be a useful myth if we tie it to the right structures and systems to ensure everyone can use their agency appropriately and avoid the overwhelming crush of defeatism when things don’t go well.
External Versus Internal Goals

External Versus Internal Goals

I don’t think about it as much any more, but several years ago I was nearly obsessed with the idea of intrinsic versus extrinsic motivation. I ran cross country in high school and at the time I was very motivated by winning medals, winning a state championship, and impressing my friends and family. After graduating and starting college, I was no longer on a team, but I was at the peak of my running and I was still motivated by shiny medals and bragging rights. For a long time, my motivation with running was extrinsic and I was focused more on external versus internal goals.

 

However, after I finished my undergrad and started working, got married, and eventually returned for more school, I had to re-think my motivation with running. I have asthma, so I was never quite able to be the best runner in any given race, but I was always competitive and if I got lucky I could win a race here or there. I could live up to the external goals that I set for myself. But once I started working 40 hour weeks and had to balance my time between work, a new wife, and eventually returning to school, I couldn’t run enough or be competitive enough to match those external goals. If I was going to keep running at all, my motivation had to be intrinsic, and I had to identify internal goals that could challenge me and keep me motivated. This is why a few years back my mind was constantly thinking about ideas of motivation.

 

The last few years, extrinsic versus intrinsic motivation and external versus internal  goals haven’t been on my mind as much, but thoughts about motivation and goals came back to me while reading Gerd Gigerenzer’s book Risk Savvy. When discussing recent increases in rates of anxiety among young people today he writes:

 

“The best explanation can be found in what young people believe is important in life: in the distinction between internal and external goals. Internal goals include becoming a mature person by strengthening one’s skills, competences, and moral values, and living a meaningful life. External goals have to do with material rewards and other people’s opinions, including high income, social approval, and good looks. People’s goals have shifted steadily since the end of World War II toward more and more extrinsic goals. Annual polls of college freshman showed that recent generations judged being well off financially as more important than developing a meaningful philosophy of life.”

 

I think that Gigerenzer’s message is a little overblown and has a little kids these days element to it, but I think the trend he identifies is generally correct, but possibly mischaracterized*. Studies have shown that our overall level of wealth or wellbeing doesn’t really mean much to us and isn’t predictive of happiness. Our expectations and a sense of improved wellbeing and opportunity is predictive of happiness. Today, young people are more connected to the world. They see more possibilities, see more ways to use and spend wealth, and have a much bigger world than children around the time of WWII. A child growing up in a small town around the 1950’s or 1960’s may have been impressed by the dentist’s house and new car, but today, a child growing up in a small town can see far more opulence than the dentist’s Mercedes. He can easily log into any social media platform and see LeBron’s mansion and Drake’s new Bugatti. It may not be that people’s goals have shifted between external or internal, but that the external goals have become far more conspicuous, expensive, and extravagant, making them all the more noteworthy and hard to reach.

 

Combine this increase in expectations of wealth and standards of living with a near constant consumer culture messaging in TV, radio, and social media advertisements, and it is not hard to imagine that external goals have become more important than internal goals as Gigerenzer notes. We are presented an image of a successful life that is full of material possessions, to the point of being unattainable. Having financial wealth, owning a large home, and having lots of toys is presented as more than just an image of success, it is in some ways presented as a morally correct way to live.

 

The problem, as I learned with running, of having external versus internal goals, is that you can’t always live up to external goals based on the ideas, skills, and thoughts of other people. No matter how hard I trained, I was simply never going to be the best runner in my city because I have asthma. On top of that, I have other constraints that are inherent to the life I live. By sticking to external goals, I would have been burnt out and defeated, likely giving up running completely. Much of the motivation and goals we set for ourselves in life are similar to the goals I had with running. We want a certain income level, a certain size house in a certain neighborhood, and a certain car to go with it all because all those things will impress other people. External goals create pressures that don’t need to exist, and can drive us to anxiety as we try to impress other people.

 

Internal goals are more realistic and can be more appropriately tailored to our actual interests, abilities, and limitations. For example, I have goals around running that are focused on health, avoiding injury, and feeling good about my physical shape. I can still have goals around running a certain mileage or a certain pace, but I try hard to calibrate those goals around my own abilities rather than the performance of my friends. Internal goals that are focused on growth and development rather than displays of wealth and social status are healthier and can actually help us achieve more than external goals that don’t align well with who we are and how we actually want to live. In the end, being able to recognize this and adjust our goals is important if we want to flourish and avoid unnecessary stress and anxiety.
*I wrote this post about a week ago, and since then have read a section of Steven Pinker’s book Enlightenment Now which further challenges Gigerenzer’s assertion that college students these days are different than college students of the post-war period. Pinker notes that studies like the ones that Gigerenzer highlights are unreliable because it is almost impossible to accurately compare different cohorts at different times. Far more people attend college today than they did during the post-war period. It is possible that even more people with intrinsic motivations for learning attend college today, but that they may be outnumbered in surveys by students with external motivations. It is possible that the increasing number of students just changed the mixture of responses, and doesn’t represent some overall change in human mindsets. Pinker presents additional challenges to these long-term comparisons which I will try to link to in a future post.
Social learning and risk aversion

Social Learning and Risk Aversion

In his book Risk Savvy, Gerd Gigerenzer looks at risk aversion in the context of social learning and presents interesting ideas and results from studies of risk aversion and fear. He writes, “In risk research people are sometimes divided into two kinds of personalities: risk seeking and risk averse. But it is misleading to generalize a person as one or the other. … Social learning is the reason why people aren’t generally risk seeking or risk averse. They tend to fear whatever their peers fear, resulting in a patchwork of risks taken and avoided.”

 

I agree with Gigerenzer and I find it is normally helpful to look beyond standard dichotomies. We often categorize things into binaries as the example of risk averse or risk seeking demonstrates. The reality, I believe, is that far more things are situational and exist within spectrums. In general for most of our behaviors that we may want to categorize with a dichotomy, I would argue that we are often much more self-interested than we would like to admit and often driven by our present context to a greater extent than we normally realize. People are not good or evil, honest or dishonest, or even hardworking or lazy. People adjust to the needs of the moment, fitting what they believe is in their best interest at a given time with influence from a great deal of social determinants. Social learning and risk aversion helps us see that dichotomies often don’t stand up, and it reveals something interesting about who we are as individuals within a larger society.

 

People have a patchwork of things they fear and a patchwork of risks they are willing to accept. On the whole, we generally won’t accept a bet unless the payoff is twice the potential gamble (there is an expected value calculation we can do that I don’t want to dive into). However, we are not always rational and calculating in the risks and gambles we take. We are much more likely to die in a car crash than an airplane crash, yet few of have any hesitation when buckling our seat for the drive to work but likely feel some nervousness during takeoff on a short flight. We are not risk seeking if we are more willing to drive than fly (in fact it isn’t really appropriate to categorize this activity as either risk seeking or risk avoiding), we are simply responding to learned fears that have developed in our culture.

 

What this shows us is that we are creatures that respond to our environment, especially our social environments. We often think of ourselves as unique individuals, but the reality is that we are dependent on society and define ourselves based on the societies and groups we belong to. We learn from those around us, try to do what we understand to be in our best interest, and navigate a complicated course between societal expectations and our self-interest. Just as we can’t classify ourselves into imagined dichotomies, we cannot do so with others. Social learning and risk aversion give us a window into the complexity that we smooth over when we try to categorize ourselves or others into simple dichotomies.
The Results of Social Learning

The Results of Social Learning

The results of Social learning are not always positive. We learn a lot from our friends, our culture, and the people around us that we are not always aware of. We are greatly influenced by what we see others doing and believing, and this includes the things we learn and come to believe as true facts about the world. This is easily demonstrated by polling the opinions of people who get their news from traditional news outlets relative to people who get their news from fringe sources with political biases. But it is also true in spaces you would not expect.

 

To describe problems in social learning results, Gerd Gigerezner in Risk Savvy writes, “All in all, social learning leads to a paradoxical result. In France, Germany, Italy, the United Kingdom, and the United States, doctors’ beliefs about diet and health – such as taking vitamin supplements or exercising – more closely resemble those of the general public in their country than of doctors in other countries.”

 

When it comes to general knowledge and an ability to distinguish between accurate information and fads, trends, or beliefs without evidence, we like to imagine that we are smart and capable of identifying the truth. We like to believe that our beliefs are based on reality, that we have carefully considered the facts, and that we hold our beliefs for good reason. We won’t admit that we believe the things we do because others hold those same beliefs, but as the doctor example above indicates, that is often the case. The Dartmouth Atlas Project shows differences across the USA in treatments for certain conditions and rates of diagnosis for different conditions. Some of that may be genetic and reflect real health differences across the country, but some of the differences reflect different treatment approach beliefs by doctors trained in and practicing in different regions of the country.

 

Social learning results are good when they bring people together in support of democratic norms or help people understand that sitting on a couch all day and eating pizza for dinner every night are unhealthy behaviors. However, social learning results can be negative when doctor’s group around wasteful medical practices. The results of social learning can also just be random and strange, such as when people fall into fad diets or exercise programs that have no discernable health benefits or harms. What we should take away from Gigerenzer’s quote is that our knowledge is not always as rock solid and evidence based as we would believe. We should be honest with ourselves and make an effort to investigate whether our beliefs are based on real evidence or based on the people in our social groups who happen to hold the same beliefs. Perhaps our beliefs are still justifiable after strict scrutiny, but perhaps some beliefs can be let go when we see they are based on little more than the opinions and feelings of people around us.
The Social Imitation of Fear

The Social Imitation of Fear

“Why do people fear different things?” asks Gerd Gigerenzer in his book Risk Savvy. Many Americans are afraid of clowns, actor Kevin Hart is afraid of basically all bugs and animals, and as Gigerenzer writes in his book, I (like most Americans) would be afraid to go pick mushrooms in the wild to eat for dinner. The social imitation of fear, Gigerenzer explains, is often at the heart of many of our phobias. Most Americans probably haven’t had a personal bad experience with creepy clowns, few of us have ever picked the wrong mushroom for dinner and died, and most of us probably haven’t had near lethal encounters with bugs or animals. It is easy to understand why a toddler who was chased or bit by a dog might be afraid of animals, but it is simply comical that Kevin Hart is afraid of harmless butterflies and mice.

 

Much of what we fear comes from social learning, picking up on what others fear, and learning to fear that thing ourselves. Gigerenzer explains that the social imitation of fear can be a benefit and serve as protection for us, but that it isn’t without its own costs. Regarding the psychology of our fear he writes, Fear whatever your social group fears. This simple principle protects us when personal experience might be lethal. At the same time, it can also make us fear the wrong things.”

 

Fears that keep us away from the edge of dangerous cliffs or keep us away from people with dangerous weapons can save our life. We can’t afford to learn to fear something lethal from experience – if you fall from a 100 foot cliff you won’t have a chance to learn to be more careful in the future. Fearing dangerous cliffs because everyone else in your tribe fears cliffs is a safer option.

 

However, this does lead us to fears that are unreasonable. It is very unlikely that any of us will be murdered by a creepy clown in the dead of night. However, a few years back pranksters started standing on street corners dressed as creepy clowns, and they scared lots of people across the country. I know people who had nightmares and were very frightened by the thought of these clowns, and were terrified of even the prospect of seeing a creepy clown on the street corner. Horror movies and common discussions of clown fears prime us to be afraid when there is no threat to us, and no real reason to be afraid. The social imitation of fear which helped our ancestors learn and survive together from the experiences of others, has been hijacked by horror movies and pranksters to create fear and anxiety for no meaningful reason.
Procedure Over Performance

Procedure Over Performance

My wife works with families with children with disabilities for a state agency. She and I often have discussions about some of the administrative challenges and frustrations with her job, and some of the creative ways that she and other members of her agency are able to bend the rules to meet the human needs of the job, even though their decisions occasionally step beyond management decisions for standard operating procedures. For my wife and her colleagues below the management level of the agency, helping families and doing what is best for children is the motivation for all of their decisions, however, for the management team within the agency, avoiding errors and blame often seems to be the more important goal.

 

This disconnect between agency functions, mission, and procedures is not unique to my wife’s state agency. It is a challenge that Max Weber wrote about in the late 1800’s and early 1900’s. Somewhere along the line, public agencies and private companies seem to forget their mission. Procedure becomes more important than performance, and services or products suffer.

 

Gerd Gigerenzer offers an explanation for why this happens in his book Risk Savvy. Negative error cultures likely contribute to people becoming more focused on procedure over performance, because following perfect procedure is safe, even if it isn’t always necessary and doesn’t always lead to the best outcomes. A failure to accept risk and errors, and a failure to discuss and learn from errors, leads people to avoid situations where they could be blamed for failure. Gigerenzer writes, “People need to be encouraged to talk about errors and take the responsibility in order to learn and achieve better overall performance.”

 

As companies and government agencies age, their workforce ages. People become comfortable in their role, they don’t want to have to look for a new job, they take out mortgages, have kids, and send them to college. People become more conservative and risk averse as they have more to lose, and that means they are less likely to take risks in their career, because they don’t want to lose their income to support their lifestyles, retirements, or the college plans for their kids. Following procedures, like getting meaningless forms submitted on time and documenting conversations timely, become more important than actually ensuring valuable services or products are provided to constituents and customers. Procedure prospers over performance, and the agency or company as a whole suffers. Positive error cultures, where it is ok to take reasonable risks and acceptable to discuss errors without fear of blame are important for overcoming the stagnation that can arise when procedure becomes more important than the mission of the agency or company.
Positive Error Cultures - Joe Abittan

Positive Error Cultures

My last post was about negative error cultures and the harm they can create. Today is about the flip side, positive error cultures and how they can help encourage innovation, channel creativity, and help people learn to improve their decision-making. “On the other end of the spectrum,” writes Gerd Gigerenzer in Risk Savvy, “are positive error cultures, that make errors transparent, encourage good errors, and learn from bad errors to create a safe environment.”

 

No one likes to make errors. Whether it is a small error on our personal finances or a major error on the job, we would all rather hide our mistakes from others. In school we probably all had the experience of quickly stuffing away a test that received a bad grade so that no one could see how many questions we got wrong. Errors in life have the same feeling, but like mistakes on homework, reports, or tests, hiding our errors doesn’t help us learn for the future. In school, reviewing our mistakes and being willing to work through them helps us better understand the material and shows us where we need to study for the final exam. In life, learning from our mistakes helps us become better people, make smarter decisions, and be more prepared for future opportunities.

 

This is why positive error cultures are so important. If we are trying to do something new, innovative, and important, then we are probably going to be in a position where we will make mistakes. If we are new homeowners and don’t know exactly how to tackle a project, we will certainly err, but by learning from our mistakes, we can improve and better handle similar home improvement projects in the future. Hiding our error will likely lead to greater costs in the future, and will leave us dependent on others to do costly work around the house. Business is the same way. If we want to grow to get a promotion or want to do something innovative to solve a new problem, we are going to make mistakes. Acknowledging where we were wrong and why we made an error helps us prepare for future challenges and opportunities. It helps us learn and grow rather than remaining stuck in one place, not solving any problems and not preparing for future opportunities.

 

80,000 Hours has a great “Our Mistakes” section on their website, demonstrating a positive error culture.