Monday, February 1, 2010

Predictably Irrational

Predictably Irrational
- The Hidden Forces that shape our decisions

“Dad, don’t you think you are drinking too much?” asked the son.
“Come with me” says dad and takes him to his bar.
“Here, you see son” says dad takes out two glasses. In one glass he pours plain water and in another glass some whiskey. “Look carefully son” he says, as he drops two small worms in each one of them.
Poof - worm in the water continues to swim well and the worm inside the whiskey glass dies right away.
“Now, as you can see, I drink just to kill worms and at my age there are lots of worms inside my stomach!”. Son leaves the bar convinced that, if he ever he gets worms in his stomach when he gets old he would drink like his dad and thus drinking whiskey is not a bad idea after all.

No matter how apocryphal this story is, for me, it demonstrates a quirky point. You can devise some clever experiment to make a point or its counter point and convince some one – at least temporarily.
Now, here comes Prof Dan Ariely, an ultra smart Israeli M.I.T professor who does series of experiments with equally smart professors from similar campuses at Harvard, INSEAD, ULCA and all.
These experiments on human behavior are not like Michelson-Morley experiment, where you can eventually converge. For a moment, I visualized myself as President of MIT or dean or whatever so that I can pose this question: “Dan, I am awestruck! But to disprove all these points what are all the experiments you would come up with. Figuring that out is your assignment for this semester” (I will let you know when Dan comes back).

Dan starts with a personal incident at the age of 18, when he met with a fateful fire accident incurring about 70% burns. So, for the next few years, he was on a series of medical procedures and dressed as he says “as a crooked version of spider man”. During that period he had the luxury to observe lots of stuff pertinent to human behavior that perhaps shaped his career. Later, he would go on to study at Telaviv University and then move to MIT to conduct more and more experiments. In the introduction itself he sets the context well to make a neat claim: “We are not only irrational – but predictably so”. In the 13 chapters that would follow he does corroborate this idea well with experimental results. The style of writing is very lucid and appealing. Let us take 4 of 13 for the commentary purposes. Chapters are nearly independent and hence can be read in any order also.

The Chapter-9, “Keeping doors open” is indeed an eye-opener. He gives the historical example of 210B.C Chinese commander, who burnt all the boats and broke all the pots to cook which left no option but to win or die – of course, they did win 9 consecutive battles. Point is that, when options are limited, focus is so high, objective is achieved. However, I am sure the same Dan would is well aware of the siege of Massada, where, for lack of options to escape in the middle of fortified desert, all the rebellious Jews ended up committing mass suicide after killing their own families.
Be it dating or elective papers or choice of vehicle, as per Dan, we would prefer the options open as all long as possible and he says, “It is a fool’s game which we are remarkably adept in playing”. Even Dan had problems in deciding between MIT and Stanford.

The Chapters-11 & 12, “The context of Character Part 1 & 2” are quite interesting and troubling too. He conducts a series of experiments in MIT and concludes that “humans are honest to the extent it suits them”. In an experiment he had four batches tested with a question paper. First batch fully is controlled. Second batch, only self checks and claim money. Third batch self check + shredding & claim money. Forth batch self check + shredding + pick up from the money jar. Needless to add, the average correct answers increased upwards, but it did not increase beyond certain point albeit there no chance of being caught. It appears even when we have no chance of getting caught, we don’t become wildly dishonest.
To summarize:

Condition # 1 Control (no chance to cheat) 32.6
Condition # 2 Self Check 36.2
Condition # 3 Self Check +Shredding 35.9
Condition # 4 Self Check + Shredding + Money Jar 36.1

“A measure of a man’s character is what he would do if he knew that, he would NOT be found out” says Macaulay. Dan has done a good deal of objective measurement – of course, results are troubling and his “take” on results are very convincing.

The Chapter-4, “The cost of social Norms” is insightful. We live in two worlds simultaneously. One is social and the other is business. In the social world, reciprocation need not be immediate, where as in business it has to be nearly real time and instantaneous. When the two worlds collide there is trouble.
He gives some dramatic examples. His “Day care” example: It imposed fine to the parents when they were late. Interestingly, parents construed it as they can chose to be late by paying fine (from social to market norm) hence late pick up increased. Palpably, that was not what the day care center intended to convey as the main message. So, they withdrew the penalty program. It did not help. Hence, once they collide and triumphed by market norms, social norms rarely returns.

After reading this book, for a moment, I felt it should have been titled “Design of experiments”.
Somehow, author has developed agreeable measurements for many of the hard to quantify stuff like honesty etc.

Distinguished French historian Emmanuel Le Roy Ladurie, once remarked there are two kinds of historians. One kind is parachutists and other is truffle hunters. Former kind observes history from afar, slowly floating down to earth while latter fascinated by the treasures of soil, keeps the nose close to the ground. It need not apply only to historians. This book indeed brought out many treasures-of-insight. Don’t miss this one.

Thanks for reading this far.