What’s the most embarrassing thing about human decision-making? It’s not that we make cognitive mistakes, says Yale cognitive psychologist Laurie Santos, in this recent TED talk. It’s that we seem doomed by our biology to make the same predictable mistakes over and over. Take finance: we tend to play it safe in situations where we stand to make gains. But faced with the risk of a substantial loss, we get nervous and opt for even riskier strategies in the vain hope we can avoid losses altogether. It’s irrational, and it seems evolutionarily hard-wired into our brains. Santos says that makes us — as Freakonomics readers will have already guessed — just like capuchin monkeys. [%comments]
Human/Capuchin Parallels Revisited
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“… we tend to play it safe in situations where we stand to make gains”
Given how many people have participated in the pat few asset price bubbles, I”m not sure I’d go along with that as a description of the behaviour of the majority of humans. (Absent the kind of sophistry which claims, contrary to both popular experience and the wisdom of Mr Micawber, that the absence of a profit is itself a loss….)
More interesting is the claim that the behaviour described in the quoted sentence – abstaining from participating in a bubble – is irrational. Participating in one certainly is – so what does the author think a rational being would do?
If people who accumulated the most wealth by avoiding those sorts of pitfalls were simply able to have more children the problem would be self-correcting.
Chen and Santos studied with Marc Hauser who is on leave and is being investigated for misconduct related to research on primate cognition. His study on how monkeys learn rules was retracted because of this type of misconduct. As fascinating as these claims are, perhaps more attention should be given to how the research was conducted.
>>”… we tend to play it safe in situations where we stand to make gains”
Given how many people have participated in the pat few asset price bubbles, I”m not sure I’d go along with that as a description of the behaviour of the majority of humans. <<
I don’t think this is what the writer intended this sentence to mean. I read this to mean that we tend to play it safe in situations where we, objectively, stand to make gains. For example, people tend to invest less when the stock market is doing poorly, when, objectively, this is when they stand to make gains.
Bubbles demonstrate exactly this point: People tended *not* to play it safe when, objectively, there is actually a very high risk of losing your shirt. For example, buying a house when appreciation is much higher than the historical average.
@Mike B I couldn’t agree with you more. Not only are we making the same decisions over and over but we are devolving as the more affluent members of our society are having less children and having them at an older age.
I have to agree with a previous poster. How can Santos and Chen’s work be trusted. They trained with Marc Hauser who has been recently found guilty of scientific misconduct.
This is not to say that Santos is a cheat like Hauser. We can give her the benefit of the doubt. However, the technique she uses (interpretation of where monkeys are looking) has been called into question. Cheating aside, many investigators do not trust the preferential looking technique because it relies on subjective interpretation of videotapes. Good science is quantifiable and does not rely on subjective interpretation. Subjectivity allows biases to creep in for even the most honest investigators.
The Hauser scandal shed a harsh light on this technique and, as Nicholas Wade pointed out in he NY Times, many scientists do not accept it as a valid methodology. I predict that this technique will be abandoned by the scientific community.