Remember heuristics? They’re the rules of thumb that allow us to make snap judgments, using System 1, our fast, automatic, and ever-on thinking system. They can also lead us into errors. According to psychologists there are least 17 errors that we commonly make. In previous articles, I’ve written about seven of them (click here and here). Let’s look at four more today.
Association — word association games are a lot of fun. (Actually, words are a lot of fun). But making associations and then drawing conclusions from them can get you into trouble. You say tomato and I think of the time I ate a tomato salad and got sick. I’m not going to do that again. That’s not good hygiene or good logic. The upside is that word associations can lead you to some creative thinking. You can make connections that you might otherwise have missed. And, as we all know, connections are the foundation of innovation. Just be careful about drawing conclusions.
Power differential — did you ever work for a boss with a powerful personality? Then you know something about this heuristic. Socially and politically, it may be easier to accept an argument made by a “superior authority” than it is to oppose it. It’s natural. We tend to defer to those who have more power or prestige than we do. Indeed, there’s an upside here as well. It’s called group harmony. Sometimes you do need to accept your spouse’s preferences even if they differ from yours. The trick is to recognize when preferences are merely a matter of taste versus preferences that can have significant negative results. As Thomas Jefferson said, “On matters of style, swim with the current. On matters of principle, stand like a rock”.
Illusion of control — how much control do you really have over processes and people at your office? It’s probably a lot less than you think. I’ve worked with executives who think they’ve solved a problem just because they’ve given one good speech. A good speech can help but it’s usually just one step in a long chain of activities. Here’s a tip for spotting other people who have an illusion of control. They say I much more often than we. It’s poor communication and one of the worst mistakes you can make in a job interview. (Click here for more).
Loss and risk aversion — let’s just keep doing what we’re doing. Let’s not change things … we might be worse off. Why take risks? It happens that risk aversion has a much bigger influence on economic decisions than we once thought. In Thinking Fast and Slow, Daniel Kahneman writes about our unbalanced logic when considering gain versus loss — we fear loss more than we’re attracted by gain. In general terms, the pain of a loss is about double the pleasure of a gain. So, emotionally, it takes a $200 gain to balance a $100 loss. Making 2-to-1 decisions may be good for your nerves but it often means that you’ll pass up good economic opportunities.
Did you know that the sale of ice cream is strongly correlated to the number of muggings in a given locale? Could it be that consuming ice cream leads us to attack our fellow citizens? Or perhaps miscreants in our midst mug strangers to get the money to buy ice cream? We have two variables, X and Y. Which one causes which? In this case, there’s a third variable, Z, that causes both X and Y. It’s the temperature. As the temperature rises, we buy more ice cream. At the same time, more people are wandering about out of doors, even after dark, making them convenient targets for muggers.
What causes what? It’s the most basic question in science. It’s also an important question for business planning. Lowering our prices will cause sales to rise, right? Maybe. Similarly, government policies are typically based on notions of cause and effect. Lowering taxes will cause the economy to boom, right? Well… it’s complicated. Let’s look at some examples where cause and effect are murky at best.
Home owners commit far fewer crimes proportionally than people who don’t own homes. Apparently, owning a home makes you a better citizen. Doesn’t it follow that the government should promote home ownership? Doing so should result in a safer, saner society, no? Well… maybe not. Again, we have two variables, X and Y. Which one causes which? Could it be that people who don’t commit crimes are in a better position to buy homes? That not committing crimes is the cause and home ownership is the result? The data are completely tangled up so it’s hard to prove conclusively one way or the other. But it seems at least possible that good citizenship leads to home ownership rather than vice versa. Or maybe, like ice cream and muggings, there’s a hidden variable, Z, that causes both.
The crime rate in the United States began to fall dramatically in the early 1990s. I’ve heard four different reasons for this. Which one do you think is the real cause?
Which of the four variables actually caused the declining crime rate in America? A lot is riding on the answer. Unfortunately, the data are so tangled up that it’s difficult to tell what causes what. But here are some rules for thinking about correlation and causation:
Actually, the only way to prove cause and effect beyond a shadow of a doubt, is the experimental method. Which leads us to our question for tomorrow: does smoking cause cancer in humans?