Thinking About Thinking: The Anchoring Effect

Sometimes it’s frightening when we examine our own decision making — especially when we realize how random and arbitrary it all is. It can be unsettling to know our judgment can be so heavily influenced by randomness — and it happens every day. Daniel Kahneman covers this in  Thinking, Fast and Slow, a bizare tour of the mind where he outlines the faults and biases—of fast thinking, and reveals the pervasive influence of intuitive impressions on our thoughts and behavior. Most notable is our tendancy to be swayed by The Anchoring Effect , the common human tendency to rely too heavily, or “anchor,” on one trait or piece of information when making decisions. Usually this pertains to numbers. For instance, when German judges, before mock-sentencing a shoplifter, were asked to roll a pair of dice rigged to come up either three or nine, those who rolled nine said on average eight months, while those who rolled three said five months…

Let’s Make a Deal — And Never Trust your Gut Decision (or Monty Hall)

 

Who didn’t love Lets Make a Deal? Monty Hall, despite being creepy, can tell us a lot about how to make decisions and how we value information given to us. Thus, we have The Monty Hall problem: Assume a room is equipped with 3 doors. Behind 2 are goats, and behind the third is a new car. You are asked to pick a door, and will win whatever is behind it. Let’s say you pick door 1. Before the door is opened, however Monty opens one of the other two doors, revealing a goat, and asks you if you wish to change your selection to the third door (i.e., the door which neither you picked nor he opened). Of course, you think, I will stick with my gut decision. But that is wrong. Never trust your gut in this situation. You have been given more information and you should factor this in. (watch now and see how it works)

The correct answer is that you do want to switch. If you do not switch, you have the expected 1/3 chance of winning the car, since no matter whether you initially picked the correct door, Monty will show you a door with a goat. But after Monty has eliminated one of the doors for you, you obviously do not improve your chances of winning to better than 1/3 by sticking with your original choice. If you now switch doors, however, there is a 2/3 chance you will win the car (counterintuitive though it seems). So don’t always trust your gut. Sometimes you may have unwittingly been given more information…take it and run:

		winning probability
pick	stick	1/3
pick	switch	2/3

Bayes’s Theorem and Evidentiary Probability — Are Miracles Miracles?

For strategists we are always gathering and gathering information — so at what point does this ‘research’ begin to frame our beliefs around the exact research we are conducting? At what point do we stop learning and make conclusions? How do we modify our beliefs in the light of new information? Bayes’s theorem, named after the 18th-century Presbyterian minister Thomas Bayes, addresses this task. Bayesian reasoning is supposed to lead us to reality — but not sure that is always the case? This is how it works, in the face of uncertainty, one asks 3 questions: How confident am I in the truth of my initial belief? On the assumption that my original belief is true, how confident am I that the new evidence is accurate? And whether or not my original belief is true, how confident am I that the new evidence is accurate? Well as David Hume once put it, an individual shouldn’t trust the supposed evidence for a miracle unless it would be even more miraculous if the actual miracle was untrue…got it?