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Your brain may be playing tricks on you

January 23, 2013

Quick, answer these questions:

1.  A bat and ball cost $1.10 in total.  The bat costs $1.00 more than the ball.  How much does the ball cost?

2.  If it takes 5 machines, 5 minutes to make 5 widgets, how long would it take 100 machines to make 100 widgets?

3.  In a lake, there is a patch of lily pads.  Every day, the patch doubles in size.  If it takes 48 days for the patch to cover the entire lake, how long would it take for the patch to cover half the lake?

Thaler and Sunstein (2009) use these questions to examine intuitive thinking.  There is so much information coming at us on a daily basis that we can’t think about everything in depth.  We need to be able to react to help us survive from the stone age to the Facebook age.  Most people on this test come up with the answers $0.10, 100 minutes, and 24 days on their first thoughts, but these are all wrong.

Our reflexive nature sometimes gets in the way of making wise decisions.  Thaler and Sunstein (2009) point out a couple of different ways this happens.

Anchoring –  Here’s another question for you.  Do you think the population of Canada is more or less than 10,000,000?  Now, what do you think the population of Canada is?  Do you think the population of Iraq is more or less than 60,000,000?  What do you think the population of Iraq is?  Iraq has a population of around 33,000,000 and Canada has a population around 34,500,000.  They are about the same size, but I’m guessing you guessed low on Canada and high on Iraq.  When we get a number our next number is usually based on that even if the first number had nothing to do with the second number.  This can affect our thoughts on pricing, estimates, and a wide variety of factors.

Availability – Based on recent events, as a society we are very concerned with the threat of gun violence.  It is an important discussion to have, but most Americans are more likely to be impacted by heart disease, but since it is a more common occurrence we spend our time worrying about recent events we see in the news instead of the threats we may actually face based on years of bad choices.

Representativeness – What do you think is the profession of the following person:

Lin

 

 

 

 

 

 

 

 

 

 

Unless you are a fan of professional basketball you probably wouldn’t guess Jeremy Lin a professional basketball player.  Why?  His looks don’t fit the image (representation) we have of what a professional basketball player has.

Overconfidence – Do you think you are an above average driver?  90% of Americans do so if you answered yes, you have a 40% chance of being wrong.  50% of marriages end in divorce, but almost everyone who enters marriage would predict it would not end in divorce.  We are overconfidence in our own abilities and frequently remember our wins while forgetting our losses.

These are just some of the biases we have.  These biases help us to quickly analyze a situation, but it is important to remember it may lead us to a faulty conclusion.

Answers to the first three questions:  If you still aren’t sure what the answers to the first three questions, they are $0.05, 5 minutes, and 47 days.

Your Turn:  Where do you notice some of these own biases in your life?  I know I don’t eat as healthy as I should or exercise as much as I should.  I guess I’m overconfident about my health and because of availability I don’t think of the risks of heart attacks and diabetes as much as I should.

Work Cited

Thaler, R.H. and C.R. Sunstein (2009).  Nudge.  New York: Penguin Group

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