Defaults Matter

Defaults Matter

I will discuss defaults in depth when I begin writing about Nudge by Cass Sunstein and Richard Thaler, but it is important to think about our responses to default choices in the context of Daniel Kahneman’s research in Thinking Fast and Slow. Kahneman argues that we can think of our brains as having two different operating systems. System 1 is the fast and automatic system. It scans the environment, takes in the salient information around us, filters out the unimportant information, and makes quick judgements without putting too much power into the thinking process. System 2 is where System 1 sends the more difficult problems that it can’t handle on its own. System 1 takes the information it can absorb, packages that information with a particular reference frame, and sends it to System 2 for slower, more energy intensive thought. And this is where the defaults matter.

 

System 1 will fall back on the default when System 2 doesn’t want to engage with a problem. Because System 2 is energy intensive we only use it when we need to (like when we are cooking a new recipe, trying to complete our taxes, or trying to win scrabble). For most decisions, we can just fall back on the default and be fine. Instead of making a tough decision, we can rely on simple standard choices without having to consider alternatives or justify why we made a particular choice. Kahneman shows how powerful the default can be by examining the rates at which people register to be organ donors in different states and countries. He writes, “The best single predictor of whether or not people will donate their organs is the designation of the default option that will be adopted without having to check a box.”

 

For most decisions and thoughts, System 1 scans the environment and makes a quick judgment as to whether or not we need to do anything. If it determines that there is a need for more comprehensive thought, then it engages System 2, but it only packages the information it could take in during its quick scan. So while our System 2 is powerful and can work through lots of information, it can only work on the information from System 1’s quick scan. That quick scan includes the default option, but doesn’t include the various other options that were not immediately available. This can create anchoring effects and limit the categories we consider for possible alternatives from the default. When someone yells an answer in Family Feud and everyone else comes up with similar answers in the same category, we are seeing people anchor to a default category for responses. When your company enrolls you in a 401K and automatically sets your contribution limit, any change that you make is likely to be a small deviation from that preset level, you are not very likely to change all the way to 0 or make a huge deviation from that default anchor. Indeed, if you have ever been stopped in freeway traffic and only after stopping realized that you could have taken numerous different routes to avoid the traffic jam, you have seen how limiting our lives can be when we stick to a simple default and fail to consider the various other possibilities available to us.

 

The reason that defaults matter so much is because we are lazy, because System 2 doesn’t do much work if it doesn’t have to, and because System 2 gets a limited set of information from System 1. Our perspectives, opinions, and the world of possibilities available to us is anchored around the default. When I write about Nudge I will get more in depth with thinking about the importance of various defaults in different areas of our lives.
Frame Bound vs Reality Bound

Frame Bound vs Reality Bound

My wife works with families with children with disabilities and one of the things I learned from her is how to ask children to do something. When speaking with an adult, we often use softeners when requesting that the other person do something, but this doesn’t work with children. So while we may say to a colleague, a spouse, or a friend, “can you please XYZ,” or “lets call it a night of bowling after this frame, OK?” these sentences don’t work with children. A child won’t quite grasp the way a softener like “OK” is used and they won’t understand that while you have framed an instruction or request as a question you are not actually asking a question or trying to give someone a choice. If you frame an instruction as a choice the child can reply with “no” and then you as a parent are stuck fighting them.

 

What happens in this situation is that children reject the frame bounding that parents present them with. To get around it, parents need to be either more direct or more creative with how they tell their children to do things. You can create a new frame for your child that they can’t escape by saying, “It is time to get ready for dinner, you can either put away your toys, or you can go set the table.” You frame a choice for the child, and they get to chose which action they are going to take, but in reality both are things you want them to do (my wife says this also works with husbands but I think the evidence is mixed).

 

In Thinking Fast and Slow, Daniel Kahneman writes, “Unless there is an obvious reason to do otherwise, most of us passively accept decision problems as they are framed and therefore rarely have an opportunity to discover the extent to which our preferences are frame-bound rather than reality-bound.”

 

The examples I gave with talking to children versus talking to adults helps demonstrate how we passively accept the framing for our decisions. We don’t often pause to reconsider whether we should really purchase an item on sale. The discount that we are saving outweighs the fact that we still face a cost when purchasing the item. Our thinking works this way in office settings, in politics, and on the weekends when we can’t decide if we are going to roll out of bed or not. The frame that is applied to our decisions becomes our reality, even if there are more possibilities out there than what we realize.

 

A child rejecting the framing that a parent provides, or conversely a parent creating new frames to shape a child’s decisions and behaviors demonstrates how easily we can fall into frame-bound thinking and how jarring it can be when reality intrudes on the frames we try to live within. Most of the times we accept the frames presented for us, but there can be huge costs if we just go along with the frames that advertisers, politicians, and other people want us to adopt.
Sunk-Cost Fallacy - Joe Abittan

Sunk-Cost Fallacy

Every time I pick the wrong line at the grocery store I am reminded of the sunk-cost fallacy. There are times I will be stuck in line, see another line moving more quickly, and debate internally if I should jump to the other line or just wait it out in the line I’m already in. Once I remember the sunk-cost fallacy, however, the internal debate shifts and I let go of any feeling that I need to remain in the current line.

 

My grocery store example is a comical take on the sunk-cost fallacy, but in real life, this cognitive error can have huge consequences. Daniel Kahneman describes it this way, “The decision to invest additional resources in a losing account, when better investments are available, is known as the sunk-cost fallacy, a costly mistake that is observed in decisions large and small.”

 

We are going to make decisions and choices for where to invest our time, attention, and money that will turn out to be mistakes. At a certain point we have to realize when something is not working and walk away. Doing so, however, requires that we admit failure, that we cut our losses, and that we search for new opportunities. Admitting that we were wrong, giving up on losses, and searching for new avenues is difficult, and it is not uncommon for us to keep moving forward despite our failures, as if we just need to try harder and push more in order to find the success we desire. This is the base of the sunk-cost fallacy. When we have invested a lot of time, energy, and resources into something it is hard to walk away, even if we would be better off by doing so.

 

Pursuing a career path that clearly isn’t panning out and refusing to try a new different avenue is an example of sunk-cost fallacy. Movie studios that try to reinvent a character or story over and over with continued failure is another example. Sitting through the terrible movie the studio produced, rather than leaving the theater early, is also an example of the sunk-cost fallacy. In all of these instances, an investment has been made, and costly efforts to make the investment pay-off are undertaken, generally at a greater loss than would be incurred if we had made a change and walked away.

 

When you find yourself saying, “I have already spent so much money on XYZ, or I have already put so much effort into making XYZ work, and I don’t want to just let that all go to waste,” you are stuck in the middle of the sunk-cost fallacy. At this point, it is time to step back, look at other ways you could spend your money and time, and honestly evaluate what your priorities should be. Doing so, and remembering Kahneman’s quote, will help you begin to make the shift to a better use of your time, energy, and resources. It may be embarrassing and disappointing to admit that something is going in the wrong direction, but ultimately, you will end up in a better and more productive spot.
Narrow Framers

Narrow Framers

I like to write about the irrational nature of human thinking because it reminds me that I don’t have all the answers figured out, and it reminds me that I often make decisions that feel like the best decision in the moment, but likely isn’t the best decision if I were to step back to be more considerate. Daniel Kahneman writes about instances where we fail to be rational actors in his book Thinking Fast and Slow, and his examples have helped me better understand my own thinking process and the context in which I make decisions that feel logically consistent, but likely fall short of being truly rational.

 

In one example, Kahneman describes humans as narrow framers, failing to take multiple outcomes into consideration and focusing instead on a limited set of salient possibilities. He writes, “Imagine a longer list of 5 simple (binary) decisions to be considered simultaneously. The broad (comprehensive) frame consists of a single choice with 32 options. Narrow framing will yield a sequence of 5 simple choices. The sequence of 5 choices will be one of the 32 options of the broad frame. Will it be the best? Perhaps, but not very likely. A rational agent will of course engage in broad framing, but Humans are by nature narrow framers.”

 

In the book Kahneman writes that we think sequentially and address problems only as they arise. We don’t have the mental capacity to hold numerous outcomes (even simple binary outcomes) in our mind simultaneously and make predictions on how the world will respond to each outcome. If we map out decisions and create tables, charts, and diagrams then we have a chance of making rational decisions with complex information, but if we don’t outsource the information to a computer or to pen and paper, then we are going to make narrow short-term choices. We will consider a simple set of outcomes and discount other combinations of outcomes that we don’t expect. In general, we will progress one outcome at a time, reacting to the world and making choices individually as the situation changes, rather than making long-term decisions before a problem has arisen.

 

Deep thinking about complex systems is hard and our brains default toward lower energy and lower effort decision-making. We only engage our logical and calculating System 2 part of the brain when it is needed, and even then, we only engage it for one problem at a time with a limited set of information that we can easily observe about the world. This means that our thinking tends to focus on the present, without full consideration of the future consequences of our actions and decisions. It also means that our thinking is limited and doesn’t contain the full set of our data that might be necessary for making accurate and rational choices or predictions. When necessary, we build processes, systems, and structures to help our minds be more rational, but that requires getting information out of our heads, and outsourcing the effort to technologies beyond the brain, otherwise our System 2 will be bogged down and overwhelmed by the complexity of the information in the world around us.
Decision Weights

Decision Weights

On the heels of the 2020 election, I cannot decide if this post is timely, or untimely. On the one hand, this post is about how we should think about unlikely events, and I will argue, based on a quote from Daniel Kahneman’s book Thinking Fast and Slow, that we overweight unlikely outcomes and should better alight our expectations with realistic probabilities. On the other hand, however, the 2020 election was closer than many people expected, we almost saw some very unlikely outcomes materialize, and one can argue that a few unlikely outcomes really did come to pass. Ultimately, this post falls in a difficult space, arguing that we should discount unlikely outcomes more than we actually do, while acknowledging that sometimes very unlikely outcomes really do happen.

 

In Thinking Fast and Slow Kahneman writes, “The decision weights that people assign to outcomes are not identical to the probabilities of these outcomes, contrary to the expectation principle.”  This quote is referencing studies which showed that people are not good at conceptualizing chance outcomes at the far tails of a distribution. When the chance of something occurring gets below 10%, and especially when it pushes into the sub 5% range, we have trouble connecting that with real world expectations. Our behaviors seem to change when things move from 50-50 to 75-25 or even to 80-20, but we have trouble adjusting any further once the probabilities really stretch beyond that point.

 

Kahneman continues, “Improbable outcomes are overweighed – this is the possibility effect. Outcomes that are almost certain are underweighted relative to actual certainty. The expectation principle, by which values are weighted by their probability, is poor psychology.”

 

When something has only 5% or lower chance of happening, we actually behave as though chance or probability for that occurrence is closer to say 25%. We know the likelihood is very low, but we behave as if the likelihood is actually a bit higher than a single digit percentage. Meanwhile, the very certain and almost completely sure outcome of 95%+ is discounted beyond what it really should be. Certainly very rare outcomes do sometimes happen, but in our minds we have trouble conceptualizing these incredibly rare outcomes, and rather than keeping a perspective based on the actual probabilities, by utilizing rational decision weights, we overweight the improbably and underweight the certain.

 

Our challenges with thinking about and correctly weighting extremely certain or extremely unlikely events may have an evolutionary history. For our early ancestors, being completely sure of anything may have resulted in a few very unlikely deaths. Those who were a tad more cautious may have been less likely to run across the log that actually gave way into the whitewater rapids below. And our ancestors who reacted to the improbably as though it were a little more certain may have also been better at avoiding the lion the one time the twig snapping outside the campground really was a lion. Our ancestor who sat by the fire and said, “twigs snap every night, the chances that it actually is a lion this time have gotta be under 5%,” may not have lived long enough to pass enough genes into the future generations. The reality is that in most situations for our early ancestors, being a little more cautious was probably advantageous for society. Today being overly cautious and struggling with improbable or nearly certain decision weights can be costly for us in terms of over-purchasing insurance, spending huge amounts to avoid the rare chance that we could lose a huge amount, and over trusting democratic institutions in the face of a coup attempt.
Substitution Heuristics

Substitution Heuristics

I think heuristics are underrated. We should discuss heuristics as a society way more than we do. We barely acknowledge heuristics, but if we look closely, they are at the heart of many of our decisions, beliefs, and assumptions. They save us a lot of work and help us move through the world pretty smoothly, but are rarely discussed directly or even slightly recognized.

 

In Thinking Fast and Slow, Daniel Kahneman highlights heuristics in the sense of substitution and explains their role as:

 

“The target question is the assessment you intended to produce.
The heuristic question is the simpler question that you answered instead.”

 

I have already written about our brain substituting easier questions for harder questions, but the idea of heuristics gives the process a deeper dimension. Kahneman defines a heuristic writing, “The technical definition of heuristic is a simple procedure that helps find adequate, though often imperfect, answers to difficult questions.”

 

In my own life, and I imagine I am a relatively average case, I have relied on heuristics to help me make a huge number of decisions. I don’t know the best possible investment strategies for my future retirement, but as a heuristic, I know that working with an investment advisor to manage mutual funds and IRAs can be an adequate (even if not perfect) way to ensure I save for the future. I don’t know the healthiest possible foods to eat and what food combinations will maximize my nutrient intake, but as a heuristic I can ensure that I have a colorful plate with varied veggies and not too many sweets to ensure I get enough of the vitamins and nutrients that I need.

 

We have to make a lot of difficult decisions in our lives. Most of us don’t have the time or the ability to compile all the information we need on a given subject to make a fully informed decision, and even if we try, most of us don’t have a reasonable way to sort through contrasting and competing information to determine what is true and what the best course of action would be. Instead, we make substitutions and use heuristics to figure out what we should do. Instead of recognizing that we are using heuristics, however, we ascribe a higher level of confidence and certainty to our decisions than is warranted. What we do, how we live, and what we believe become part of our identity, and we fail to recognize that we are adopting a heuristic to achieve some version of what we believe to be a good life. When pressed to think about it, our mind creates a justification for our decision that doesn’t acknowledge the heuristics in play.

 

In a world where we were quicker to recognize heuristics, we might be able to live with a little distance between ourselves, our decisions, and our beliefs. We could acknowledge that heuristics are driving us, and be more open to change and more willing to be flexible with others. Acknowledging that we don’t have all the answers (that we don’t even have all the necessary information) and are operating on substitution heuristics for complex questions, might help us be less polarized and better connected within our society.
Thoughts on Biases

Thoughts on Biases

“Anything that makes it easier for the associative machine to run smoothly will also bias beliefs,” writes Daniel Kahneman in his book Thinking Fast and Slow. Biases are an unavoidable part of our thinking. They can lead to terrible prejudices, habits, and meaningless preferences, but they can also help save us a lot of time, reduce the cognitive demand on our brains, and help us move smoothly through the world. There are too many decision points in our lives and too much information for us to absorb at any one moment for us to not develop shortcuts and heuristics to help our brain think quicker. Quick rules for associative thinking are part of the process of helping us actually exist in the world, and they necessarily create biases.

 

A bad sushi roll might bias us against sushi for the rest of our life. A jump-scare movie experience as a child might bias us toward romcoms and away from horror movies. And being bullied by a beefy kid in elementary school might bias us against muscular dudes and sports. In each instance, a negative experience is associated in our brains with some category of thing (food, entertainment, people) and our memory is helping us move toward things we are more likely to like (or at least less likely to bring us harm). The consequences can be low stakes, like not going to horror movies, but can also be high stakes, like not hiring someone because their physical appearance reminds you of a kid who bullied you as a child.

 

What is important to note here is that biases are natural and to some extent unavoidable. They develop from our experiences and the associations we make as move through life and try to understand the world. They can be defining parts of our personality (I only drink black coffee), they can be incidental pieces of us that we barely notice (my doughnut choice order is buttermilk bar, maple covered anything, chocolate, plain glaze), and they could also be far more dangerous (I have an impulse to think terrible things about anyone with a bumper sticker for a certain political figure – and I have to consciously fight the impulse). Ultimately, we develop biases because it helps us make easier decisions that will match our preferences and minimize our chances of being upset. They are mental shortcuts, saving us from having to make tough decisions and helping us reach conclusions about entire groups of things more quickly.

 

The goal for our society shouldn’t be to completely eliminate all instances of bias in our lives. That would require too much thought and effort for each of us, and we don’t really have the mental capacity to make so many decisions. It is OK if we are biased toward Starbucks rather than having to make a decision about what coffee shop to go to each morning, or which new coffee shop to try in a town we have never visited.

 

What we should do, is work hard to recognize biases that can really impact our lives and have negative consequences. We have to acknowledge that we have negative impulses toward certain kids of people, and we have to think deeply about those biases and work to be aware of how we treat people. Don’t pretend that you move through the world free from problematic biases. Instead, work to see those biases, and work to push against your initial negative reaction and think about ways that you could have more positive interactions with others, and how you can find empathy and shared humanity with them. Allow biases to remain when helpful or insignificant (be biased toward vegetarian take-out for example), but think critically about biases that could have real impacts in your life and in the lives of others.
Recognize Situations Where Mistakes Are Common

Recognize Situations Where Mistakes Are Common

“Because System 1 operates automatically and cannot be turned off at will, errors of intuitive thought are often difficult to prevent,” writes Daniel Kahneman in Thinking Fast and Slow. System 1 is how Kahneman describes the intuitive, quick reacting part of our brain that continually scans the environment and filters information going to System 2, the more thoughtful, deliberate, calculating, and rational part of our brain. Biases in human thought often originate with System 1. When System 1 misreads a situation, makes a judgment on a limited set of information, or inaccurately perceives something about the world, System 2 will be working on a poor data set and is likely reach faulty conclusions.

 

Kahneman’s book focuses on common cognitive errors and biases, not in the hope that we can radically change our brains and no longer fall victim to prejudices, optical illusions, and cognitive fallacies, but in the hopes that we can increase our awareness of how the brain and our thinking goes off the rails, to help us marginally improve our thought processes and final conclusions. Kahneman writes, “The best we can do is a compromise: learn to recognize situations in which mistakes are likely and try harder to avoid significant mistakes when the stakes are high.”

 

If we are aware that we will make snap judgments the instant we see a person, before either of us has even spoken a single word, we can learn to adjust our behavior to prevent an instantaneous bias from coloring the entire interaction. If we know that we are making a crucial decision on how we are going to invest our finances for retirement, we can pause and use examples from Kahneman’s book to remember that we have a tendency to answer simpler questions, we have a tendency to favor things that are familiar, and we have a tendency to trust other people based on factors that don’t truly align with trustworthiness. Kahneman doesn’t think his book and his discussions on cognitive fallacies will make us experts in investing, but he does think that his research can help us understand the biases we might make in an investment situation and improve the way we make some important decisions. Understanding how our biases may be impacting our decision can help us improve those decisions.

 

Self- and situational-awareness are crucial for accurately understanding the world and making good decisions based on sound predictions. It is important to know if you can trust an educated guess from yourself or others, and it is important to recognize when your confidence is unwarranted. It is important to know when your opinions carry weight, and when your direct observations might be incomplete and misleading. In most instances of our daily lives, the stakes are low and errors from cognitive biases and errors are low, but in some situations, like serving on a jury, driving on the freeway, or choosing whether to hire someone, our (and other people’s) livelihoods could be on the line. We should honestly recognize the biases and limitations of the mind so we can further recognize situations where mistakes are common, and hopefully make fewer mistakes when it matters most.
The Challenge with Low N Events

The Challenge with Low “n” Events

There are a handful of things we only do once or twice in our lives. Many of us probably aspire to only get married a single time, only select a single school to attend for college, and only take a vacation to a foreign country one time. These low “n” experiences, or low frequency occurrences,  are hard to predict and prepare for. It is hard to know exactly what we will want, exactly what risks we might face, and how we will respond in experiences that we can’t always practice and experiment with. Sometimes the consequences are huge, as in the case of a marriage or picking the right college major, and sometimes the consequences are rather trivial, like picking the right beach to visit during your Spanish vacation (hey, in the age of COVID-19 we can still dream right?).

 

In the face of these one time experiences (whether big or trivial) we seem to fall into two paths. The first path is one of detailed and conscious study. Some of us will agonize for hours over which beach to go to on our vacation, which food trucks we should hit up, what time of year to travel, and where to stop for that hidden Instagram gem of a waterfall. Others of us will follow the second path, giving almost no thought to the decisions we face, big or small. We will just go with our guy and jump into a career, a relationship, or a lake.

 

On the one hand, these low “n” events don’t offer a lot of room for trail and error. If you are not likely to ever get a second vacation to Hawaii, then you probably want to seize every moment of your trip, making sure you check out whales, enjoy the shopping and beaches, and avoid that long road trip to Hana (it just isn’t worth it – trust me). You only get one shot, so you should do your best to prepare yourself to make the best decision. As Seneca wrote in Letters From a Stoic, “You may deem it superfluous to learn a text that can be used only once; but that is just the reason why we ought to think on a thing.”

 

But at the same time, should we really stress ourselves over a decision that we will potentially only make one time? If we constantly worry about our single decision, will we then second guess ourselves the whole time and wonder if we made the right choice? Will we ever truly move on from that single decision and adjust to the the choice we made and find a way to be happy where we end up? Is it really worth the time to focus all our energy on a single decision point when we know we will have other high “n” events that might be more meaningful than the low “n” event we spend all our time thinking about?

 

Seneca thinks it is worth the effort to think through the big low “n” events, to make sure our decision making is as comprehensive and self-aware as possible. But he, and other Stoics, would likely advise that we don’t put too much pressure on ourselves to make a perfect decision. I think he would simultaneously recommend that we approach low “n” events with an open mind to the outcomes, recognizing that our reactions to the outcomes will often determine whether we find the end state to be unbearable or something where we can still thrive. In the end we should think critically on our decisions, including low “n” events and choices, but we should be flexible in how we respond to outcomes and in how we think the world should be.
Living Under Constraints

Living Under Constraints

In Letters From a Stoic, Seneca quotes Epicurus in writing, “It is wrong to live under constraint; but no man is constrained to live under constraint.”

 

Quite frankly, Seneca and Epicurus are wrong. The stoic thinkers make two arguments in the short quote, and both fail to live up to the reality of humankind’s existence. The sentiment shared is noble, and certainly rings true in my American ears, but on closer reflection, proves to be a fiction.

 

The first argument, that it is wrong to live under constraint assumes that human beings can somehow exist separate from society with all needs and desires fulfilled. Stoic thought focuses on our mind and what is within our direct control. Stoicism hinges on the idea that our thoughts and reactions are the only thing we can possibly have true ownership and control over. It encourages us to move beyond our ego, which drives us to acquire possessions, build a reputation, and always bolster our social status with things beyond our control. Stoic philosophy encourages self-awareness and a sense of self-contentedness that comes from controlling one’s mind and being satisfied by simply experiencing life, whatever life is presented to us.

 

However, having constraints in our lives is important, and might actually be better for us than unlimited choice and possibility. A famous study on jam selection and satisfaction from 2000 suggests that people who had a limited selection of jams were more satisfied with their selection than people who picked a jam from a more broad and expansive selection of jams. With unlimited choice, options, and opportunities, we are unhappy. We can’t make a selection when we are not living under constraints, and we are constantly unsure if we truly made the best choice when our choices are unlimited. Constraints play a powerful role in helping us understand who we are, where we fit in society, and by creating bounds for our decisions, actions, and lives. Without constraints, we do not always flourish, sometimes we flounder.

 

What we see is that our lives are guided by and defined by constraints. Therefore, the second argument of the two stoics, that no man is constrained to live under constraints, is clearly wrong. We might not be actively constrained by another human being, but we are constrained by our governments, our home owners associations, or our bosses or customers. We are also constrained by nature and our physiology. There is a limit to how fast we can run, what forces our bodies can endure, and much we can eat. Our brains are incredible machines, but they too are limited in how long they can operate without sleep, how difficult of tasks they can work through, and how much they can remember. There is simply no way to escape constraints, and living in a complete freedom, as Seneca seems to be suggesting with the rest of his letter after the quote above, will not lead to unbridled happiness. It is constraint, and how we learn to live within constraints, which brings forth our creativity, our imagination, and makes life actually possible.