Thursday, October 25, 2012

Why Smart People Make Bad Decisions

Zachary Shore says in "Blunder: Why Smart People Make Bad Decisions" they fall into inflexible mind-sets formed from faulty reasoning and cognition traps. His recipe for avoiding cognition traps and inevitable blunders is to cultivate mental flexibility, empathy, imagination, contrarianism and an open mind. That's got to be easier said than done.

Take a test: A bat and ball cost a dollar and ten cents. The bat costs a dollar more than the ball. How much does the ball cost?

The majority will respond quickly and confidently, insisting the ball costs ten cents. This answer is both obvious and wrong. (The correct answer is five cents for the ball and a dollar and five cents for the bat.)

When faced with an uncertain situation, most people don’t carefully evaluate the information or have the luxury to look up relevant statistics. Instead, our decisions depend on a long list of mental shortcuts.  Shortcuts aren’t a faster way of doing the math; they’re a way of skipping the math altogether. We have seen how Mitt Romney tripped on his budget numbers in the recent debates. Unlike the Singapore system, he can't simply restate the economic data to "correct" a technical recession.

While philosophers, economists, and social scientists assume that human beings are rational agents, others like Shane Frederick (who developed the above bat-and-ball question) demonstrated that we’re not nearly as rational as we like to believe. Apparently there is a “meta-bias” that is rooted in our innate ability to spot mistakes in the decisions of others, and inability to identify those same mistakes in ourselves.

A study in the Journal of Personality and Social Psychology led by Richard West at James Madison University and Keith Stanovich at the University of Toronto suggests that, in many instances, smarter people are more vulnerable to these thinking errors. After testing students on four measures of “cognitive sophistication,” they reported in the paper, all four of the measures showed positive correlations, “indicating that more cognitively sophisticated participants showed larger bias blind spots.” West’s paper demonstrates that it applies to every single bias under consideration, from anchoring to so-called “framing effects.” In each instance, we readily forgive our own minds but look harshly upon the minds of other people.

Sydney Finkelstein, a professor at Dartmouth Tuck School of Business, and the author of "Why Smart Executives Fail" says that being a successful leader is not just about intelligence, not just about being smart. It's about actually making the right moves at the right time.

Andy Ho of ST ("Sex blogger's 'crazy ' act") skips all these headache inducing theorizing, to the extent of rubbishing Socrates, by offering "akrasia" as justification - as defined by him as "intemperance, acting against one's better judgement, or lacking control over oneself". He writes, "Craziness, it turns out, may have little to do with irrationality and everything to do with one's opinion of the virtues of an act." For sure, each one of us is likely to be bonkers, driven to the nut house by the virtue of economic vibrancy (as in Grace Fu's "The economic vibrancy of the country remains an important political consideration") at the cost of stressed infrastructure, encroaching inflation and being squeezed on all fronts by the alien crowd. There's the method in the madness.


  1. Thanks for sharing.
    We need quality postings (though difficult to maintain the standard).
    Everyone (smart or stupid) could make bad Decisions, though reasons are far apart.

    market2garden sd 2012.10.25

  2. Indeed, before anyone goes on the 'esteemed advice" from your so called moral leaders, one just have to look around us with examples like the plastic surgeon Richard Teo who has the word "millionaire" attached to his on the fast and furious lane...think and look again.

  3. I got the lily pond doubling question correct, the bat and ball wrong, so I am irrational as anyone else.

    But the studies quoted in the New Yorker article generally defined "smart people" as those who went to Harvard, or those with high SAT scores, which incidentally were the yardsticks used to select all our scholars ministers and perm/deputy secs running the country. So maybe we can say the pitfalls in policieis could be explained by common "irrationality".

    But I tend to believe Andy Ho's explanation that people choose to be "obsessed" with certain ideas such as economic vibrancy not because of blind spots, or a result of groupthinking (given that none of the scholars perm/deputy secs ever held a proper job in real life and all went to the same oxbridge universities followed by summer Harvard or standford MBA). It is far more likely that they are believers in the virtues of the self-serving GDP bonus which they so carefully crafted for themselves. How else can one explain Grace's now famous fb entry about the "sacrifices" of entering politics, and her boss ardent defence of her stance. So its Andy Ho's dollars and cents, not irrationality nor blindspots.

    1. A politician's job by definition, is a political appointment.
      You can call it meritocratic until the cows come home.
      A Minister is a political appointment.
      You serve at the Prime Minister's pleasure.

    2. It's especially quite true in the appointment of our PAP's cronies. When one is out of favour or incurs the Emporer's wrath, suddenly all the meritocracy of that person doesn't matter at all eg our Ex-Attorney General Francis Seow.

      But when one particular CEO loses billions of our investment monies, they still couldn't find someone more meritocratic to replace her ? And is that because she is the ONLY BEST ONE available under our type of meritocracy and therefore irreplaceable ?

      It's still meritocracy, is it ?

    3. It is marritocrazy.

    4. "A minister is a political appointment,
      you serve at the Prime Minister's pleasure"

      How about Ho Jinx ? Is she serving at the PM's pleasure or father-in-law's pleasure ? Hence can we say the PM was smart but made a bad decision or the PM was dumb and made a bad decision ?

    5. I like that new term "marrytocracy".
      Use it more often and it will be listed in Webster and Oxford !
      Have this notion that most MBA holders out of Harvard and or Standford in Singapore context always live by the Growth is Glorious motto.

    6. Lol! Marrytocracy! How true. Just one word describes it all! Brilliant.

  4. Why bothered to read articles by sycophants? I skip all editorial and opinion pieces on ST. Maybe I should skip the forum too. Hmm, or maybe I should just read those parts by Reuters et al. Minus the facts, the rest are basically junk. I bought it primarily to pick up my dog's poo.

    1. Please don't insult your dog's poo with the Shit Times.

    2. Hello,
      don't anyone know that beside ST known as ShittyTimes, another nickname is Sycophant Tales ? ST is PAP's mouthpiece that abuse the taxmoney to finance state media company
      as propaganda operation for the party. They will publish tales of PAP sycophants to insult your intelligence and dignity.

      Even a dog's poo deserve better treatment than to be wrapped with ShittyPaper. Don't further dirty your dog poo with it.

    3. Q: So what is Shit times good for?
      A: Wrap up the garbage in parliament?

    4. Government lies,
      and newspapers lie,
      but in a democracy they are different lies.

    5. "So what is Shit times good for?"
      Good at packaging and repackaging BS until it becomes palatable to many....

    6. ST journalism is people who can't write; interviewing people who can't get a better paying job elsewhere;
      in order to provide articles for people who can't think.

    7. JOKE
      Shit Times policy on Opposition politicians:
      You have the right to remain silent.
      Anything you say will be misquoted, then used against you.

  5. We should be least concern about why "smart" people make bad decisions.

    Be more concern about why seemingly 'normal' people don't make better decisions.

  6. Grace Fu : "Singapore needs a steep improvement in productivity with a calibrated inflow of foreign workers to address the shrinking labour force."

    Ms Fu, we have 2 million foreigners out of 5.4 million, and this is called a shrinking labour force? Are you bonkers, or are we going to be? Is this akrasia or hyperbolic discounting - in layman's language, crazy or going for short term gains (GDP growth through immigration)? Short-cuts anyone, or just running out of ideas? "Cognitively sophisticated participants showed larger bias blind spots". I guess this must refer to our "scholars" and elites.

    You can skip Andy Ho's long-winded, convoluted semantics on craziness, an exhibition of his eruditeness. Cutting all the crap, you can become crazy or irrational because of your BELIEFS and DESIRES - for political power, wealth, status, sexual gratification, success, fame, notoreity, accolades, drugs etc - and these are powerful, habit-forming, driving forces that can trump reason, opinion, logic, and are reasonable or rational only to yourself. They can overcome your moral being, principles, scruples, and lead to meta-bias and blind-spots.

    Look at the scholars and upwardly mobile elites. Smart, right? But some wank themselves into trouble with their sex-capades and corruption because their greed and libido got the better of them. And look no further than the PAP and it's policies, and what drives them, with these same scholars and elites in charge. Talk of principles, scruples and morality, or lack thereof! If you lack scruples, you can always make the right moves or decisions that benefit yourself.

    1. Talk no use.
      You must vote Opposition.
      And convert at least one of your friend or relative to also vote Opposition.
      60% of your friends & relatives voted Opposition.