Wednesday, September 8, 2010

Psychology 02

Study the following optical illusion:

Now, if I were to tell you that the color of the tiles at A and B are the same, you wouldn't believe me.

However, once I add in a bridge to connect the two tiles, the fact is obvious:

However, if you look at the original picture again, the illusion comes back. Even though you consciously know that the shades are the same, your brain still tells you that they are different.

Vision is one of the best things human do. Vision takes up more of the brain's resources than anything else. Apart from necessary motor functions, vision is the most active skill we use daily.

Looking back at the optical illusion question raises a question: If we can make such predictable, consistent and reproducible mistakes even in vision, what about all the other processes that goes through our mind?

Optical illusions can be seen as a metaphor for human rationality. Can we be sure that we do not make the same revealing mistakes we do in vision when we make financial decisions? Like how optical illusions trick our vision, cognitive illusions can trick our thinking just as well.

However, cognitive illusions are more difficult to present. Refer to the following chart:

This is an actual data collected by a 2003 Science paper. What's presented here in the chart is the various percentage of people in different countries in Europe who opted to participate in an organ donation program.

From the diagram, we can clearly see that countries on the left and right are on opposite ends in terms of participation. The first thing we'd assume is that there must be some sort of cultural differences. However, upon further observation, you'll realize that Denmark is actually culturally similar to Sweden, but we have very different results. The same applies to Germany and Austria, Netherlands and Belgium, and UK and France.

A great concept is demonstrated here. What actually caused the great variation between the countries is the form used to gather the data. For the countries on the left, the form says:

"Check the box if you want to participate in an organ donation program",

on the other hand, countries on the right has:

"Check the box if you don't want to participate in an organ donation program".

In both cases, most of the boxes were not checked.

It is hard to believe that such "forms" can actually influence our decision making so much, because we feel like we have the driver seat of our lives. When you do things in your daily lives, you get to do things according to your own decisions. But are those truly your own decisions, or the decision of someone who designed your "form"?

Now, a standard rational economist would argue that most people do not care about their organs because it is something that takes place after they die. The cost of lifting the pencil to check the box is higher than the possible benefits that they can gain from it.

Dan Ariely, a behavioral economist, believes instead that people care too much. For most people, making the decision of donating your organs is so complex that they do not know what to do. Because they do not know what to do, they would pick whatever was chosen for them.

This effect not only applies to the general population, but it also applies to professionals as proven by a paper by Redelmeier and Schaefer. There are two groups of physicians and they are given a case study each. For the first group, the case study goes:

"There is an eighty-year-old patient suffering from pains in his right hip. You decided a few weeks ago that none of the medications are working, so you referred the patient for operation to have his hip replaced. Yesterday, you reviewed the case and you found out that you haven't tried ibuprofen. What do you do?"

Well, all of the physician suggested to delay the operation and try ibuprofen, which is good. Now, the second group is given the following case:

"There is an eighty-year-old patient suffering from pains in his right hip. You decided a few weeks ago that none of the medications are working, so you referred the patient for operation to have his hip replaced. Yesterday, you reviewed the case and you found out that you haven't tried ibuprofen and piroxicam. What do you do?"

Now, the problem suddenly becomes complex. Now you have two medications to try out - do you carry on with the planned operation, or do you pull the patient back? If you actually pull the patient back, which medication do you try first? Ibuprofen or Piroxicam? Suddenly, with just one extra decision to make, carrying on with the operation seemed to be a much simpler task. Most of the physicians then chose to let the patient go through hip replacement.

Now, no physician would tell you that: "Oh, I have three decisions to make: Ibuprofen, Piroxicam, and Hip Replacement. I choose Hip Replacement". However, once something is set as the default, it has a huge power on whatever people end up choosing.

Another example brought up by Dan Ariely is this: Suppose that you were given a choice of going to Rome, or going to Paris. All expenses paid. Both destinations have their own culture and so on, so they get almost equal amounts of votes.

However, once you add a third, inferior choice to the mix, things start to change. Suppose that the third choice would be a trip to Rome, all expenses paid except that breakfast is not served and you would have to pay for it yourself. At first, this may seem like it does nothing, but what this actually does is that the addition of the inferior choice actually makes Rome with all expenses paid a superior choice, even over Paris.

Dan Ariely also conducted another experiment in MIT involving subscription. Students were given this subscription form:

1) Web Subscription $59
2) Print Subscription $150
3) Print and Web Subscription $150

The results were that the Web Subscription is the least popular at 16% while the Print and Web Subscription took the other 84%. Nobody chose the standalone Print subscription.

Well we would think - If nobody chose the Print subscription, we can then eliminate it from the list. A second group of students were given this form:

1) Web Subscription $59
2) Print and Web Subscription $150

Now, results became radically different! The Web Subscription now gathered 68% of the students, while the Print and Web Subscription dropped to 32%. The option in the middle was useless in the sense where nobody chose it, but it's not useless in helping people make decisions. The presence of the middle option made the combo option a fantastic deal.

The general idea is that we do not know our preferences that well, and because of that, we are susceptible to external forces such as these. This force works not only in general decision-making, but also in our natural human instincts. A fine example is how we choose our partners.

Dan Ariely decided to use two CGI images of males: Tom and Jerry. Again, two groups were tested. The first group had an added uglier version of Tom, and the second group had an added uglier version of Jerry. In the first group, Tom became significantly more popular than Jerry, and in the second group it's the other way round.

In Standard Economics, humans are viewed as such:

"What a piece of work is a man! How noble in reason! How infinite in faculty! In form and moving how express and admirable! In action how like an angel! In apprehension how like a god!" - William Shakespeare (Act II. Scene 2 of Hamlet)

Now, in modern Behavioral Economics, the view of ourselves is not as generous. In fact, humans are viewed plainly as sheep which we can manipulate and herd. Humans are attracted to "Free Lunch", and we should build everything based on it.

In the physical world, we build everything based on our limits. For example, we can't fly, so we build steps to help us up. We can't reach the television from a distance, so we build remote controls. However, in the mental world, we tend to forget our limits. If we can better understand these limits, we can better shape our decisions.

I'll end this article by recommending this book if you would like to know more about Behavioral Economics: Predictably Irrational

1 comment :

  1. very good.
    now i know we cannot look at things at the surface. We got to look at the potential effect.