To Err Is Primate

Dr. Laurie R. Santos and colleagues seek to answer this question in an intriguing article. Dr. Santos notes that making decisions is not always so simple. Her research leads to a number of conclusions:

Given the difficulty of maximizing payoffs, it’s no surprise that we make tons of bad mistakes all the time. What is surprising, is that we don’t just make random mistakes, we seem to make systematic mistakes. We don’t just experience a catastrophic cognitive meltdown when facing hard choices; we instead systematically switch on a set of simple (though mostly irrational) strategies to weigh those choices. http://edge.org/conversation/to-err-is-primate

After going through some scenarios, Santos tells us:

Why does a simple change in wording so critically influence our decisions? Kahneman and Tversky discovered that the culprits are two psychological biases: reference dependence and loss aversion. The first of these is our tendency to see things not in absolute terms but relative to some status quo. Most people think about their decisions not in terms of their overall happiness or total net worth but as gains or losses relative to some reference point, usually the here and now. A $20 parking ticket won’t have a significant effect on our life savings, but it’s still a negative change from our current wealth level, and thus we tend to find the event salient. The parking-ticket example also highlights the second psychological bias at work: loss aversion. We generally avoid situations in which we could incur a loss. Indeed, Kahneman and Tversky’s studies have shown that we work twice as hard to prevent being in the red as we do to seek out opportunities to land in the black.

Dr Santos wondered why we repeatedly employed decision strategies that are wrong for us:

Why do house sellers, professional golfers, experienced investors, and the rest of us succumb to strategies that make us systematically go wrong? A few years ago, my Yale colleagues Venkat Lakshminarayanan and Keith Chen and I decided to try to get to the bottom of this question. After reviewing examples in which people succumb to these biases time and again, we started thinking that reference dependence and loss aversion might be more fundamental than economists had previously thought. This led us to a somewhat radical idea: perhaps these biases are a natural part of the way we view our choices, a result of a long evolutionary legacy. If so, we hypothesized, humans might not be the only species to use these poor decision-making strategies. Rather than investigating the biases of human subjects, we decided to test whether similar errors showed up in the decision making of one of our primate relatives: the capuchin monkey, whose last common ancestor with humans lived around 35 million years ago.

She and colleagues found:

Overall, our monkeys behaved just like humans tested in Kahneman and Tversky’s scenarios: they thought about the market in terms of arbitrary reference points and responded to payoffs differently depending on whether the payoffs appeared to be gains or losses relative to those reference points. In this and other studies, monkeys seemed not to consider their choices in absolute terms. Moreover, they made decisions differently when dealing with losses than when dealing with gains. These findings suggest that the biases that human decision makers show may be far more fundamental than originally thought. The biased strategies that cost Tiger Woods millions of dollars each year may be at least 35 million years old.

What is distressing:

The discovery that loss aversion and reference dependence may be deeply evolved psychological tendencies has important implications for our ability to overcome these biases. For years, economists have assumed that decision makers would stop using irrational strategies in the face of enough negative financial feedback. Unfortunately, there is growing evidence that people don’t drop these strategies as soon as they become costly. Pope and Schweitzer estimate that loss aversion causes even experienced professional golfers to lose more than a million dollars a year, yet nearly all golfers on the tour exhibit these biases. Similarly, investors tend to hold on to losing stocks even after suffering repeated losses because of doing so. Our capuchin findings suggest an answer to why these biases might be so hard to overcome: reference dependence and loss aversion may be as deeply ingrained as some of our other evolved cognitive tendencies. Just consider how difficult it is to switch off our natural fondness for cheesecake, our squeamishness about bugs, our disgust at a pile of feces. When natural selection builds in a strategy, it’s hard to get rid of. If reference dependence and loss aversion are phylogenetically ancient enough to be shared with capuchin monkeys—as our work suggests—it’s unlikely that the human species will overcome these tendencies anytime soon.

Nonetheless, strategies are being developed to use the biases to our advantage:

How, then, should we deal with the fact that our choices are at the mercy of deeply ingrained irrational strategies? One way, advocated by the behavioral economist Richard Thaler, is to harness these biases for our benefit.6 We may be at the mercy of reference dependence, but there’s lots of flexibility in what counts as a reference point. Using subtle changes in wording and framing, we can switch how we instinctively think about a problem and make the most rational option feel more intuitive. Thaler has used this idea to develop a better retirement savings plan, one that increases people’s savings contributions automatically after they’ve received a pay raise. By taking retirement contributions before people have a chance to adjust to their new paycheck’s reference point, Thaler’s plan avoids loss aversion and allows people to feel better about saving more.7 Similar reference-point changes have been used to increase other good behaviors. The psychologist Noah Goldstein observed that hotel guests are more likely to reuse bath towels when they are informed that most previous guests chose to do so. The actions of others provide a powerful reference point against which we strive to avoid seeming less environmentally correct.

With newfound insights about the phylogenetic origins of our irrational decision-making strategies in place, social scientists are now poised to discover new ways we can harness our evolved biases to further modern decision-making agendas—such as making better financial choices and perhaps even increasing our happiness. Even professional golfers have made some headway in this regard. Reference dependence may have cost Tiger a win at the 2009 Barclays, but it also gave him a way to feel better about his poor performance. When interviewed about his score on the eighteenth, Tiger was quick to highlight an alternative reference point for the press: his final putt wasn’t the worst final putt in the tournament. “It’s frustrating when you misread a putt that bad,” he said. But one of the players he tied with “did the same thing. His putt broke more.” Changing your reference point may be an evolutionarily old strategy, but it’s also a smart one. And as any golfer can tell you, if you look carefully you can always find a worse putt.

For me, this article explains many things like why constituents seem to vote for measures that are demonstrably against their best interest. Perhaps some cognitive polyphasia?