Data Strategy

September 29, 2007

“A Short Course in Thinking About Thinking”

Filed under: People and Data — chucklam @ 8:34 pm

Danny Kahneman, Nobel Prize winner and co-creator of behavioral economics, led a two-day class on “thinking about thinking.” Edge.com has a sampling of videos and corresponding transcripts of class sessions. His work tends to explore biases in people’s thinking. Kahneman is widely influential in psychology, decision theory (the descriptive kind), and economics. However, his work deserves a even broader audience.

On two views of a problem: In business, people sometimes do both a “top-down” and a “bottom-up” forecast to ensure reasonable prediction. This can be abstracted to problem solving in general.

[T]here are two ways of looking at a problem; the inside view and the outside view. 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—and to look at yourself as a point in the distribution is a very un-natural exercise; people actually hate doing this and resist it.

On Bernoulli’s utility theory:

Lots of very very good people went on with the missing parameter for three hundred years-theory has the blinding effect that you don’t even see the problem, because you are so used to thinking in its terms. There is a way it’s always done, and it takes somebody who is naïve, as I was, to see that there is something very odd, and it’s because I didn’t know this theory that I was in fact able to see that.

On people’s inability to predict their own happiness: In one experiment, his team paid volunteers to eat the same kind of ice cream for eight days. The volunteers were asked to predict their rating of the ice cream on the last day.

Most people get tired of the ice cream, but some of them get kind of addicted to the ice cream, and people do not know in advance which category they will belong to. The correlation between what the change that actually happened in their tastes and the change that they predicted was absolutely zero.

It turns out—this I think is now generally accepted—that people are not good at affective forecasting. We have no problem predicting whether we’ll enjoy the soup we’re going to have now if it’s a familiar soup, but we are not good if it’s an unfamiliar experience, or a frequently repeated familiar experience.

Furthermore, from other research…

It turns out that people’s beliefs about what will make them happier are mostly wrong, and they are wrong in a directional way, and they are wrong very predictably.

(Here an interesting question pops into my head. While most people cannot predict at all what will make them happy, are there people who are actually good at it? If so, what are they like?)

On people’s ability to maintain logical consistency: There are many examples of experiments where people are asked related questions but give logically incompatible answers. It’s easy for us to look at the questions/answers side by side and see the inconsistency, but…

The point is that life serves us problems one at a time; we’re not served with problems where the logic of the comparison is immediately evident so that we’ll be spared the mistake. We’re served with problems one at a time, and then as a result we answer in ways that do not correspond to logic.

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