Injecting emotion into the decision-making process hardly ever leads to the best result. But surprisingly, Cordelia Fine suggests emotions play a huge role in human decision-making in subtle ways that few people understand.

Labels: cordelia fine, emotions

We all love stories, but are they good for making decisions?

We have all read about the fellow who smoked two packs of cigarettes a day and died at 98, or the person who never believed in seat belts and was miracoulsy spared in an auto accident while his buckled-in companion sustained fatal injuries. But when it comes to decision-making, there is no doubt stories can mislead us. The funny thing is, our minds naturally favor stories and anecdotes over statistics.

In Thomas Kida's new book, Don't Believe Everthing That You Think, he talks about the six basic mistakes we make in our thinking. The first is we prefer stories to statistics. Our bias for stories is carefully manipulated by the media. In the book, Kida quotes Don Hewitt, the producer of "60 Minutes," as saying he would not accept a segment from Mike Wallace or Leslie Stahl or any of the other reporters unless it told a really good story.

To give you an idea of how powerful a good story can be, Kida quotes the following statistic: in July 1999, 11% of the people polled thought the lunar landing was a hoax. I remember in the third grade being ushered into the library to watch Walter Cronkite talk about this historic event, so it is very difficult for me to understand why anyone would think the lunar landing was a hoax. But to give you an idea of how powerful stories can be, the number of people believing we never did land on the moon doubled after televised a segment called "Conspiracy Theory: Did We Land on The Moon?"

We are not born with the ability to think critically - we need to train our minds to think this way.

On a recent fishing trip, my best fishing buddy caught this amazing fish, a 35lb blue catfish. Mike Ostrander, our guide, told us some riveting fishing stories and also gave us some useful statistics for evaulating our expectations on future trips. He told us a story about a time a few years ago when he put out four lines and immediately got a fish on each line that weighed over thirty pounds. Our guide also told us the Sunday before that there had been a fishing tournament with 30 boats. The first prize was won by a man who caught a 29lb fish.

What Abigail (my daughter, pictured to the right, who went on this fishing trip with me) and others should learn from this is that catching a 35lb fish is very rare. She should have fun fishing even if she only catches a few three pounders. But the memory of catching this humongous fish, and hearing the story of when the guide had hooked in four monsters at one time, influenced her thinking much more than the hard stats about the 30 boats that failed to catch a fish weighing over 30 pounds.

Decision-Making Best Practice #6: Beware of allowing annecdotes and stories influence your thinking. Get the facts and analyze the numbers.

Labels: facts, statistics, stories

In my last blog, I commented on the amusing bumper sticker that read, "Don't believe everything you think." This bumper sticker was not just amusing, it was is also incredibly profound.

Researchers continue to find evidence that shows our thinking is affected by a multitude of subtle factors. These factors often cause us to make suboptimal or even poor decisions.

Cordelia Fine, a psychologist at University of Melbourne in Australia, has written a brilliant book titled A Mind of Its Own that summarizes much of the current research on how our brains trick us into thinking we are smarter, kinder, and better looking than we really are. For the next few blog posts, I am going to review her book.

In the first chapter titled "The Vain Brain," Cordelia documents how we are preconditioned to process facts in ways that allow us to see ourselves in the most positive light. Sometimes, the brain acts as a circus mirror to distort our view of our self. But unlike the circus mirror that makes us fatter or shorter, this mirror only acts to make us more beautiful, more intelligent, and nicer than we really are.

For example, as Cordelia recounts in her book, psychologists gave a group of test subjects a series of puzzles to solve. After the puzzle-solving sessions, the subjects were given the test results. Some subjects were told they had done extraordinarily well and were in the very top percentiles of all puzzle solvers. Other people were told they had done surprisingly poorly.

After the test, the subjects were asked about the relationship between puzzle-solving and overall intelligence. Guess what? The subjects who were told they had done extraordinarily well felt puzzle-solving ability was a very good indicator of overall intelligence. Those who did poorly dismissed puzzle-solving ability as an arcane, irrelevant skill often practiced by people who had too much time on their hands.

Selective memory is one of the vain brain's greatest assets. Working like an unscrupulous prosecuting attorney, the vain brain does everything it can to bring facts to our consciousness that supports the idea that we are a good person, and ignores ideas contrary to what we want to believe.

When reading this chapter, I could not help but think of Lauren Cleari, the young woman who destroyed her marriage and crushed her husband on the FOX game show "The Moment of Truth." Lauren went on national television and admitted she had committed adultery.

But she didn't stop there. She told the interviewer she had married the wrong man and should have married her ex-boyfriend.

It is no surprise that marriages sometimes end, but the way Lauren ended hers was cruel and humiliating for her husband. The amazing thing is, after she did this shameless act, Lauren told the show's host she honestly believed she was (still) a good person.

How did her brain do that? She simply remembered some of the good things she had done in the past and ignored the devastatingly heartless thing she had just done.

Decision-Making Best Practice #1: There is a little of Lauren Cleri in all of us. Always remember, our own brain is a master of rationalization and selective memory. We tend to judge others much more harshly than we judge ourself.

Labels: cordelia fine, rationalization, selective memory

I was at the Pony Pasture today and saw a bumper sticker that said, "Don't believe every thing that you think." This is great advice because everything that we believe is not true. What we think is largely determined by others. We are told thousands of things by our parents, teachers, advertisers, friends and politicians. Life is too short to independently verify every thing we hear. If we are told something enough times we tend to accept it as true. Many of the things we are told seep into our conscious and act to form the way we think.

Many of the false things that we think are harmless. If you believe a cup of coffee in the morning helps you think better, there is very little harm even if studies later prove this to be false. But sometimes we believe things to be true that are not true and it causes great damage.

About a year ago I found myself in a meeting with a psychologist who happened to believe in reincarnation. There were about thirty of us in the room and she said she was going to regress us and allow us to see some of our past lives.

I am not going to criticize her beliefs, but I am going to criticize her thinking.

You know, of course, that prior to the industrial revolution, the vast majority of people worked in agriculture. Also, a very large percentage of people who have lived before were Chinese since China has such a large population. So if past lives are uniformly distributed, you would expect that many of the people in the room would report that in their past lives they were Chinese peasant farmers.

No one reported that they had been Chinese in a prior life and only one person reported being a farmer. If we assume that just 20% of the people who lived prior lives were Chinese, than the chances that none of the people in the room had been Chinese in a prior life is .8 to the 30th power. That's almost zero. The occupations that people reported having in their prior lives were much more interesting than being farmers. There were ship's captains and General officers and princesses.

The psychologist who believed in reincarnation looked only for facts that supported her preconceived belief that she had in fact lived many times before. What she never did was look for ideas and evidence that people do not have multiple lives.

The point is, if you are making an important decision, it is often a very good idea to write out what are the facts and assumptions as well as what you believe and ask what are the things that you believe that may actually be not true.

Labels: facts

Shandra is a very pleasant young lady in my office who each morning fills a pitcher with water that she flavors with sliced lemons. Some days she slices the lemons into wedges and some days she cuts them into little circles. She squeezes the lemons before she puts them into her pitchers some days and other days she does not.

Why do I care enough about Shandra's lemons to post about this. Because it is another excellent example of how we as humans are inconsistent in our decision making process. Why doesn't Shandra figure out the way to extract the most lemon juice and do this the same way each time? Because she is human and humans are inconsistent in the way that they make decisions.

Malcolm Gladwell in his book Blink recounts the story of the Goldman Chest Pain Decision Tree that was first used at Cook County hospital determine what level of care patients who were admitted having chest pains should receive. The Goldman chest pain decision tree combined the EKG results with three other measurements. This included:

1. Whether the patient had unstable angina
2. Whether there was fluid in the lungs
3. Whether the systolic blood pressure was below 100

According to Gladwell, these simple decision rules applied uniformly (I would call this a naked decision making strategy) resulted in fewer unnecessary hospitalizations and were better at identifying the most critical patients than the collective wisdom on the emergency room doctors.

A simple rule based method forced the doctors to make their treatment decision in a consistent way and resulted in better decisions for the patients. Decision makers frequently lack structure in their decision making with lemons and sometimes with things much more important.

I spoke with Andrea today, who was the copy editor for my book. Andrea is a very bright professional who takes tremedous pride in her craft. She has almost superhuman ability to pay attention to detail and I consider myself very blessed to have had the opportunity to work with her on my book. Andrea is also inconsistent in the application of her expertise.

She edited my book twice, both before it was typeset and approximately a month later after the type setting process was complete. While typically after a book is typeset, the copy editor gives the book a perfunctory look through, I asked Andrea to go through my book in detail after it was typeset for a second time. Guess what? She found several things on the second look through that she did not change on her first look. Andrea, like experts in ever field of human endeavor, is inconsistent in the application of her judgment. She simply does not make the exact same decision each time for the exact same fact set

Several years ago researchers gave a group of pathologists fact sets for 192 patients and asked them to determine if the patient's tumors were malignant. However, unkown to the patholgists, the fact set contained the data for only 96 patients. Each patient's data was duplicated. If the pathologists were consistent, they should have made the exact same decisions each time. But for a number of patients, the patholgists came to opposite conclusions for the exact same data. The first time they said the tumor was malignant and the second time they said it was not.

We need to understand that even people in the top of their field (such as Andrea) when applying their judgment to a fact set will be inconsistent in their decisions. This is why naked decision making strategies are so useful. When decisions are made by a predetermined rules, the exact same decision is made for the same fact set each time. Naked strategies provide consistency that human judgement can not duplicate.

Welcome to my new site and my new blog! Here I'll be sharing a mixture of financial thoughts, interesting news, and (most importantly) how to make better, more systematic decisions every day.