Event: Carl Richard pens New York Times article on loss aversion.
If owning stocks is a long-term project for you, following their changes constantly is a very, very bad idea. It's the worst possible thing you can do, because people are so sensitive to short-term losses. If you count your money every day, you'll be miserable.-Daniel Kahneman
On this day in 2013, an article appeared in The New York Times entitled “Overcoming an Aversion to Loss.” The writer of the article, Carl Richards, begins by quoting Lance Armstrong: “I like to win, but more than anything, I can’t stand the idea of losing. Because to me, losing means death.”
Richards argues that Armstrong’s dislike for losing is universal in humans. It’s called loss aversion, and it basically means that “we feel the pain of loss more acutely than we feel the pleasure of gain.”
To further illustrate the point, Richards turns to the psychological research of Daniel Kahneman and Amos Tversky, who came up with a simple experiment to document the reality of loss aversion in ordinary people. The researchers offered their subjects a bet on a simple coin toss. If the coin falls on tails, you lose $10. He then asked the subjects how much they would have to gain by winning in order to take the bet. On average, subjects want at least $20 for a win before they will take the bet. In short, this experiment reveals that the pain we experience from a loss is twice the amount of pleasure we feel from a win.
Loss aversion is a specific phenomenon that’s a subcategory of a larger effect known as negativity bias. In short, “Bad is stronger than good.” When it comes to the human species, negative experiences have a greater impact on us than positive ones; humans are hardwired to see the glass as half empty rather than half full.
The positive side of loss aversion and negativity bias is that they give us keen insights into human nature, insights we might be able to use for more effective persuasion. For example, if it is true that losses are perceived as greater than gains, we should not just focus on the advantages of a proposition, we should instead focus on how the proposition might help us to avoid disadvantages. If we are selling a toothbrush, we might go beyond just showing the bright smile it will give the customer; in addition, we should show how it will help alleviate the terrible tooth decay that the customer might experience without it. Because we are cognizant of negativity bias, we might see how the bad effect (tooth decay) is more powerful than the good effect (bright smile).
Because loss aversion tells us that the fear of losing money is more motivational than the prospect of gaining money, we might consider framing a sales pitch around this psychology. For example, instead of focusing on the money a customer will save by buying our toothbrush, it might be smarter to focus on how much the customer will lose if they don’t buy it.
Challenge: The Half Empty Appeal: Do some research on advertising for specific products. Look specifically for examples of how marketers appeal to losses or disadvantages in order to capitalize on loss aversion and negativity bias.
Subject: Enlightenment - Buddha and the Bodhi Tree
Event: Bodhi Day
We are shaped by our thoughts; we become what we think. When the mind is pure, joy follows like a shadow that never leaves. -Buddha
Siddhartha Gautama (560-380 BCE) was a prince who lived in northern India. In line to be the next king, Siddhartha lived a life of wealth and luxury. In his twenties, however, he became discontented and left home to seek enlightenment. He spent six years living a life of austerity and meditation; however, he still did not find the enlightenment he was looking for.
Finally, one day he resolved to sit under a bodhi tree and not get up or leave until he had achieved enlightenment. At dawn, on what traditionally is celebrated on December 8, Siddhartha experienced the Great Awakening and became Buddha (which means “the enlightened one”).
For the next forty-five years, Buddha taught his disciples what he had discovered while meditating under the bodhi tree, his Four Noble Truths: first, that suffering is an innate and unavoidable part of life; second, that desire and craving are the cause of suffering; third, that letting go of desire and craving is the key to overcoming suffering; fourth, that following the Middle Way -- a path that is neither overly indulgent nor overly ascetic -- is the prescription necessary for overcoming suffering. The Middle Way is also known as the Eightfold Path: right understanding, right intention, right speech, right action, right livelihood, right effort, right mindfulness, and right concentration (1).
In his book The Happiness Hypothesis, social psychologist Jonathan Haidt points out Buddha’s brilliant metaphor for understanding our divided self, the tension within our mind between our chaotic desires, our emotions, and our conscious, rational self. To illustrate this, Buddha asks us to imagine our mind as a wild elephant:
In days gone by this mind used to stray wherever selfish desire or lust or pleasure would lead it. Today this mind does not stray and is under the harmony of control, even as a wild elephant is controlled by a trainer. (2)
Later in his book, Haidt explains this metaphor into his well-known elephant and the rider metaphor (See THINKER’S ALMANAC - September 22 ).
Challenge - Buddha’s Words of Wisdom: Do some research on quotations by Buddha. When you find one you like, write it out. Then, explain why you think it provides wisdom and insight.
Sources:
1-Bassham, Gregory. The Philosophy Book. New York: Sterling, 2016: 24.
2-Haidt, Jonathan. The Happiness Hypothesis. Basic Books, 2006: 2.
Subject: Outcome Bias - The Attack on Pearl Harbor
Event: Pearl Harbor Day, 1941
The good life is a process, not a state of being. It is a direction not a destination. -Carl Rogers
This day in 1941 is known as “a date which will live in infamy.” It is the day that sparked the United States’ involvement in World War II when the Japanese unexpectedly attacked Pearl Harbor, Hawaii.
On what was a quiet Sunday morning, hundreds of Japanese fighter planes descended on Pearl Harbor just before 8:00 AM. and destroyed nineteen vessels and over 300 planes. More than 2,400 Americans were killed in the surprise attack.
After what was the worst disaster in American military history, officials immediately began searching for answers as to how it happened. Although there had been signs of a possible attack by Japan before December 7, the problem was that there was too much intelligence, and much of it was conflicting. The conventional wisdom before the attack was that Japan was incapable of mounting such an operation so far from its home shores; instead, an attack on the Philippines seemed a much more likely target. Nevertheless, many looked at the intelligence and saw signs that should have caused U.S. military leaders to anticipate the attack and to evacuate the base (1).
The attack on Pearl Harbor is a classic case study in outcome bias: the tendency to evaluate a decision based on its results rather than on its process. It was easy to cherry pick from the plethora of intelligence after the fact and find evidence that an attack was imminent; however, because so much of the data was contradictory, a decision in real time was very difficult to make (2).
The lesson of outcome bias is to avoid judging a decision purely by its result. Randomness and chance play a big role in how things happen, and if we leap to judging things based on outcome rather than process or other external factors, we might miss important insights. Imagine, for example, you take an important test such as the SAT and do poorly. If you judge yourself solely on the result, it leaves little room for improvement. If you focus instead on what you can learn from the process, you’ll be better prepared to improve your performance next time.
When setting goals, it is especially important to distinguish between process and outcome. For example, you might set an outcome goal of achieving a certain score on the SAT; however, in pursuit of this goal, it is important to consider process goals: specific acts or tasks that you need to complete in service of reaching your goal. For example, setting an outcome goal of running a marathon in under four hours means little if you don’t have specific process goals. How many miles, for example, are you going to run per week in training? What specific things should you consider regarding your diet and sleep schedule?
Challenge - Process Versus Product: Do some research on quotations about the theme of process versus product (outcome). Pick a quotation you like, write it down, and explain why you think it is insightful.
Sources:
1-Miller, Nathan. “Why Was the Surprise Attack At Pearl Harbor Such a Surprise?” The Baltimore Sun 1 December 1991.
In my country we go to prison first and then become President. -Nelson Mandela
Nelson Mandela, the former president of South Africa, died on this day in 2013. Before he died, however, a number of people were under the incorrect presumption that he had died while being held as a political prisoner in South Africa in the 1980s.
One person who realized her error was Fiona Broome. In 2009, she was at a conference and realized that she was not alone in her belief that Mandela had died in prison. Many of the people she talked to at the conference shared her memory of Mandela’s death.
Shocked by the phenomenon of so many people being so wrong about a shared memory, Broome decided to publish a website to document other instances of what she called the Mandela effect.
Just as individuals can form false memories, groups of people can form collective false memories. Psychologists believe this happens because of a concept known as “confabulation”: the process by which we produce false memories unconsciously without any intention of deceiving anyone. As we attempt to recall a memory, we cannot recall everything, so we confabulate by filling in the gaps of our memory with details that feel correct but that are not entirely accurate. When we confabulate, we’re not lying; instead, we generate false memories without any intent to deceive anyone, genuinely believing we have recalled the memory correctly.
For example, many people remember the famous Darth Vader line from The Empire Strikes Back as “Luke, I am your father.” However, Vader actually says “No, I am your father.” It’s a small difference; however, thanks to the Mandela effect, the wrong version of the movie line has become the standard line that people quote.
Try this trivia question: Was Alexander Hamilton ever President of the United States?
The answer is no; however, many will falsely claim that he was. This makes sense when you think about how our memories are organized. We encode our memories using categories and associations called schemas. Since Hamilton fits well in the Founding Fathers/Presidents category of our memories, we might mistakenly believe that he actually was president. This is the same false cognitive leap that some people make with Benjamin Franklin: because he played a large role in the founding of the United States, because he is a distinctive voice in American history, and because we see his face on U.S. currency, we might believe he was president. Franklin, however, never served as president.
Challenge - What’s in a Name?: Another well-known psychological effect, named for a famous person, is the “Benjamin Franklin Effect.” Do some research on the specifics of this effect. Explain what it is and what it has to do with Benjamin Franklin.
Event: The Byrds song “Turn, Turn, Turn” hits number one, 1965
On this day in 1965, a song with lyrics written by an ancient king of Israel became a number one hit. The song was “Turn, Turn, Turn,” by the folk-rock group the Byrds.
The song’s music was written by the American folk singer Pete Seeger in 1961. Seeger said that he had just gotten a letter from his music publisher, saying that he was having trouble selling Seeger’s protest songs. Frustrated and angry, Seeger took out a Bible, turned to some verses in the third chapter of the Book of Ecclesiastes, and improvised a melody; within fifteen minutes he had a demo of the song that he sent off to his publisher. The publisher loved the song and quickly sold it to the folk group the Limelighters, who recorded a version featuring the banjo. The song did not become a hit, however, until the Byrds recorded their own arrangement, featuring their unique folk-rock style.
Of course, the writer of the song’s lyrics was not alive to see the song’s success, nor did he earn any royalties. The writer was, however, royal. He was King Solomon, the king of Israel, who built the First Temple in Jerusalem in the ninth century B.C. Solomon was known in his life for his massive wealth, but also for his prodigious wisdom.
The classic tale used to illustrate Solomon’s perspicacious judgment is found in Old Testament, I Kings 3:16-28:
Two women came before King Solomon, desiring his judgment on a vital personal matter. The two women lived in the same house and each gave birth to a baby boy within days of each other. The first woman explained to Solomon that the second woman’s baby had died in the night, three nights after it was born. The first woman further claimed that the second woman crept into her room at night and exchanged her dead child for her living baby. Upon hearing the first woman’s story, the second woman countered, saying that the living child was hers, that the first woman was making up the story, and that it was actually her baby who died.
After hearing the conflicting testimonies of the two women, Solomon pondered how to tell which one of the women was lying and how to determine the child’s true maternity.
Next, Solomon issued an order to his courtiers: “Bring me a sword. Divide the child in two, and give half to the one, and half to the other.”
Upon hearing this, the first woman begged the king not to kill the child and to instead give the baby to the second woman. The second woman approved of Solomon’s solution, saying, “Let it be neither mine nor thine, but divide it.”
King Solomon now issued his final judgment, awarding custody to the first woman, saying, “Give her the living child, and in no wise slay it: she is the mother thereof.”
Solomon’s judgment in this case clearly showed his wisdom and insight. After hearing the pleas of the first woman to spare the child’s life, he knew she must be the true mother. This was then confirmed by the second woman’s cold acceptance of the plan to slice the baby in two. Obviously, this case was decided long before DNA testing, but as Solomon revealed, his psychological insight was as good as, and much quicker than, any DNA test.
Challenge - Counterintuitive Solutions: Solomon’s decision to slice the baby in two was clearly a counterintuitive approach to solving the problem; nevertheless, in hindsight, we can see its wisdom. Common sense is important, but it’s also important to see the sense in thinking that does not necessarily fit the mold. What is another example of a situation in which counterintuitive thinking made sense? Do some research and find a case that illustrates how pure logical thinking is not always the place to begin when problem-solving.
Sources:
(1). 1-”Turn, Turn, Turn (To Everything There is a Season”) Songfacts.com
Event: Birthday of epidemiologist Juan Carlos Finlay, 1833
In 1881, epidemiologists -- disease detectives -- were searching for the cause of yellow fever. Conventional wisdom at the time was that it had something to do with unsanitary conditions and unhealthy air.
One doctor, however, had a different hypothesis. He was the Spanish, Cuban epidemiologist named Juan Carlos Finlay, who was born on this day in 1833. Finley noticed a correlation between the presence of the Culex mosquito and yellow fever. It seemed that the warm weather that brought the Culex also inevitably brought yellow fever. However, when the weather cooled and the Culex disappeared, so did yellow fever.
Finlay tested his hypothesis by having mosquitoes first bite patients with yellow fever and then bite healthy patients. The healthy patients, however, failed to get sick. Based on this evidence, Finlay’s hypothesis was disregarded.
One American doctor, however, remembered Finlay’s mosquito hypothesis when yellow fever broke out where he was working in Mississippi. Henry Rose Carter noted a pattern of yellow fever outbreaks aboard ships that arrived at port in the southern United States. Initially, there might be some cases, but then there appeared to be a period of around two weeks before other cases developed. This caused Carter to hypothesize that there might be a short incubation period.
In 1901, Carter was reassigned to Havana, Cuba, as a quarantine officer. There, he was able to persuade his superior, Water Reed, to put his mosquito hypothesis to the test. Two of Reed’s assistants, Jesse Lazear and James Carroll, agreed to use themselves as guinea pigs. They first had mosquitos bite patients with yellow fever. They then waited for twelve days before letting the mosquitoes bite them. Confirming Carter’s hypothesis, both Lazear and Carroll came down with yellow fever, and unfortunately, Lazear’s case was so severe that he died.
The work of all these doctors to discover the cause of yellow fever confirms what the historian Daniel Boorstin about learning: “The greatest obstacle to knowledge is not ignorance; it is the illusion of knowledge.” Lazear’s initial hypothesis seemed crazy; after all, how could such a tiny insect be the cause of the death of so many people? It seemed much more plausible that the cause must be the unhealthy conditions revealed by the stench in the air.
Challenge - Heroes of Epidemiology: Do some research on epidemiologists who have made great contributions to public health. Identify one person, and explain his or her specific contribution.
Sources:
1-Klein, Gary. Seeing What Others Don’t. London: Nicholas Brealey Publishing, 2013.
Subject: Thinking and Memory - The Brain Attic and Ladder of Inference
Event: Sir Arthur Conan Doyle introduces Sherlock Holmes, 1887
On this day in 1887, the detective Sherlock Holmes first appeared in Arthur Conan Doyle’s story “A Study in Scarlet.” The story was published in a paperback magazine called Beeton’s Christmas Annual (1).
Early in the story, Holmes is becoming acquainted with his new roommate, Dr. Watson, who also is the narrator of the story. As the two talk, Holmes presents a metaphor that explains his philosophy towards knowledge: the brain attic:
I consider that a man's brain originally is like a little empty attic, and you have to stock it with such furniture as you choose. A fool takes in all the lumber of every sort that he comes across, so that the knowledge which might be useful to him gets crowded out, or at best is jumbled up with a lot of other things, so that he has a difficulty in laying his hands upon it. Now the skillful workman is very careful indeed as to what he takes into his brain-attic. He will have nothing but the tools which may help him in doing his work, but of these he has a large assortment, and all in the most perfect order. It is a mistake to think that that little room has elastic walls and can distend to any extent. Depend upon it there comes a time when for every addition of knowledge you forget something that you knew before. It is of the highest importance, therefore, not to have useless facts elbowing out the useful ones. (2)
To sum up Holmes' philosophy, we might say simply, “Garbage in, garbage out.” Clearly, his brain attic metaphor challenges us to be conscious and mindful about how and with what we stock our memory.
One essential piece of hardware we might use for this task is called the Ladder of Inference. Many people need a ladder to reach their attics, but this is not a ladder you will find at the hardware store. Like the brain attic, it’s a metaphor.
The Ladder of Inference was created by organization psychologist Chris Argyris. By breaking our light-speed thinking process down into six phases, we can analyze how we infer meaning, draw conclusions, establish beliefs, and take action. By making our thinking process less hurried and random, we’re much more likely to keep our brain attic uncluttered.
Before we look at the six rungs of the ladder of inference, let’s look at a short story that we can use to illustrate how we might use the ladder.
Sale Lost, Lesson Gained
One early morning, a used car salesman named Jerry arrived for duty. Standing outside, he surveyed his inventory, hoping the day would produce some sales. Suddenly, a yellow Vega driven by an elderly woman turned into the car lot and pulled up alongside Jerry. The woman rolled down her window and asked:
“Do you discount here?”
Jerry responded, “Yes, ma’am,” as he tried to conceal his excitement.
The woman frowned and said, “Pappy always said there’s no bargain in discounted goods.” The woman then rolled up her window and proceeded to drive out of the car lot.
As he watched the yellow Vega in the distance, Jerry thought about the brief encounter. Looking for a silver lining, he thought: “Well, I lost my first customer of the day, but at least I gained a point of view.”
We begin our thinking process on the bottom, first rung of the ladder by FILTERING DATA based on the information we take in from our senses. Sherlock Holmes was a master at observation. He knew that only by deliberately and consciously practicing seeing, can we learn to truly observe. No one sees, hears, tastes, smells, or feels everything; we are all limited by our different perceptions of reality. Therefore, instead of seeing all of reality and all facts, we select a part of reality -- the part that seems important to us based on the context of the situation. For example, in our story, many cars were driving by the used car lot, but our narrator focussed primarily on the yellow Vega that pulled into the lot.
Next, we step up to the second rung by INFERRING MEANING based on what data we have selected. This step requires interpretation and educated guesses, and it can be heavily influenced by emotion, associations, and cultural/personal experience. For example, in our story, the narrator inferred that the driver of the Pinto was looking for a “discount” even though she never explicitly said that she was.
The third rung is where we MAKE ASSUMPTIONS. Often these assumptions are unconscious rather than conscious assumptions. This is also the rung where we begin to build a narrative that will explain what we see and hear. Unfortunately, we seldom question that narrative or generate alternative possible explanations. For example, in our story, the narrator assumed that his interpretation of the word “discount” was the same interpretation as the driver of the Pinto.
The fourth rung is where we DRAW CONCLUSIONS. While these conclusions are influenced by our assumptions, they are also influenced by our prior beliefs, which include a whole range of cognitive biases, such as availability bias, confirmation bias, and cognitive dissonance. For example, in our story, the narrator falsely concluded that the driver of the Vega wanted him to answer “Yes” to the question about discounting. Instead of drawing a rational conclusion based on questioning his prior inferences and assumptions, he jumped to a hasty conclusion.
The fifth rung is where we FORM BELIEFS. Based on the context of the situation, we affirm or adjust our beliefs. For example, in our story, the narrator’s conclusion about the elderly woman became a belief that she was looking for a discount. His belief seemingly blinded him to seeing an alternative possibility.
The sixth rung is where we TAKE ACTION, applying our conclusion and beliefs to a seemingly conscious decision. For example, in our story, the narrator took action, answering the woman’s question with the response that his false assumptions, hasty conclusions, and incorrect beliefs had led him to (3).
Of course, it is too simplistic to characterize the complexity of our thinking process as a simple step-by-step process from the bottom to the top of the ladder. Instead, each rung is influenced by the others. Our assumptions, values, and beliefs influence our perception of the world; therefore, they influence how we select and interpret data, and often our beliefs and past actions influence our perceptions. In our story, for example, the driver of the Vega acquired her negative view of discounting from her “Pappy.” Guided by this belief, she is likely to reject discounting as a positive. The narrator, however, seems to make an adjustment to his beliefs at the end of the story. He says he “gained a point of view,” which leads us to think that the next time he encounters a question from a customer, he will be less likely to jump to a hasty conclusion. He might even generate alternative interpretations and question his own assumptions before drawing a conclusion. He might also have learned a lesson about the influence of emotion (“containing my excitement) on clouding clear thinking.
Challenge - Diagram Ladder of Inference: Draw a graphic representation of the ladder of inference, labeling its six rungs. Think of a situation, a story, or an experience you had that involved decision-making. Break down the process of that decision-making using each of the six rungs of the ladder of inference.
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