Addendum—Perception

As mentioned in the chapter on PERCEPTION, Michael Lewis’s book “The Undoing Project” is a masterful summation of two highly unlikely intellectual sages’ discoveries. Lewis, a gifted writer, is recognized as one of the very finest and prolific best-selling nonfiction authors. He points out in this book that the human mind consistently and systematically errs in both judgment and decision-making. His boldly earth-shaking treatise highlights the famed psychologists Amos Tversky and Danny Kahneman. They reversed contemporary models of intuition and decision-making by revolutionizing psychology, economics, philosophy, and neuroscience.

Ultimately, Lewis shares these new and exciting discoveries and their origin by describing the dynamic duo’s personal histories and their seminal research studies. It is important to give you, the reader, a detailed background of each researcher to understand better their evolution and the path to the recognition of phenomenal achievements.

An unlikely duo, Drs. Amos Tversky and Danny Kahneman were mirror opposites.  Both researchers actually began as unknown Israeli soldiers. But later surreptitiously met and became an unlikely team. Their unexpected collaboration culminated in a complex jigsaw chronicled by accomplishments and ultimate fame. 

Both had independently experienced Freud's conventional psychologies, Behaviorism, other psychoanalytic theories, mind interventions, and Gestalt psychology. With their very different backgrounds, personalities, interests, and studies, this very dissimilar couple soon rose to the level of international icons. They became two of the most famous and important behavioral psychologists of the 20th century.  Drs. Daniel Kahneman and Amos Tversky developed an awe-inspiring series of seminal studies that turned decision-making upside down. They demonstrated ways in which the mind systematically erred when making judgments and decisions. They actually created a brand new academic discipline, the study of behavioral economics. The duo unequivocally proved that human intuition is inherently fallible and unreliable, the very hallmark of their research. 

These original thinkers had a bold new approach to researching the human mind. Their basic findings concluded that our minds tend to be eager to see things based on inherent biases and limited information. Those limitations to our perceptions and decision makings caused what Drs. Tversky and Kahneman called the “endowment effect,” described as the premature confirmation of distorted judgments.” This phenomenon occurs when we look at an outcome such as a baseball game with “hindsight bias” based on our original and false premises, to begin with. They also verified that the very first impressions of people, based on initial interactions, can be highly fallible. This additional phenomenon is called a “Halo Effect”; that is, a person’s first impression, through initial interactions, creates positive or negative impressions. For example, a baseball scout watching a high school player tends to make a quick impression without realizing all of the other variables occurring at the same time.

Consequently all future decisions are organized around these initial impressions. These obvious biases affect player choices. Thus, the bias of either under-valuing or over-valuing determines future decisions.

Similarly, “hindsight bias” looks at an outcome and assumes it was predictable all along. Another phenomenon was called “confirmation bias.” It is the process of establishing an opinion and then arranging other additional information to support the original opinion. For example, sports scouts tend to put observed players in categories based on their prior observations of others equally skilled or those lacking skills. They support their findings based on those original biases. This reminds the scout of similar players with similar physical attributes. The associated resemblance of previously observed players allows scouts to rationalize their choices while soothing their conscience. It is a means of providing an antidote for the vagaries of our inherent fallibility. 

 

Likewise, in normal social parlance, we look for reasons why we like or don’t like persons, things, or organizations. A current example might be Stephen Curry’s phenomenal basketball success as a Golden State Warrior. Now, talent scouts are looking for the most valuable sharpshooting guards who are light-skinned, mixed-race, possess high versatility, and come from a more obscure college. Previously, scouts had frequently ignored the fact that potential superstars might be from an unknown college. Ironically, obscure colleges are where so many superb NFL players originate from. Unable to factor in their own ignorance, they select players from schools of high notoriety. Yet, the highly critical factors that decrease errors and increase successful decision-making are ignored. Thus once a perception is established, it becomes extremely difficult to change that original conclusion.

Tversky and Kahneman simply found that having complete information, including all variables necessary for accuracy, needs to be accounted for and factored into decisions. This results in logarithmic equations, which include all of the necessary variables needed for accurate decision making. The variance of each individual factor is the key component to successful decisions. As a result of their investigations, a far more sophisticated and accurate assessment system resulted.

Tversky and Kahneman concluded, “In making predictions and judgments under uncertainty, people do not appear to follow the calculus of chance or the statistical theory of prediction. Instead, they rely on a limited number of heuristics which sometimes yield reasonable judgments and sometimes lead to severe and systematic error.”  (Written in their paper “The Psychology of Prediction”)

Their research soon recognized and pointed out that the fallibility of human judgments is far more critical than simply denying their existence. It also had far more implications to old “fake truths”. For example, they reported that since 400 BC, Hippocrates and humanity saw a strong connection between weather and arthritis. However, after detailed studies, it was concluded that there was no significant correlation between the two. The same is true of many ‘old wives tales’ and myths. Once fake news is accepted, it becomes very resistant to change.

Even more critical, the two researchers made another compelling statement, “The fate of an entire society can be sealed by rewarding mistakes.” Obtaining probabilities from a carefully designed mathematical model rather than intuition is absolutely urgent in our modern high stakes society. Rather than spinning alternative realities in order to avoid personal pain, regret, envy, frustration, or failure, having verified measurable variables avoids dangerous conclusions. It also negates the need for a plethora of unnecessary rationalizations. An American example might be the lack of measurable facts and variables that caused the U.S. to go to war against Iraq. Instead, creating a verifiable alternative reality based on proven data would have created a far superior choice. 

In the process of their work, they slowly and painfully became critical of the fallacies of psychoanalytic and other psychological procedures not verifiable with factual outcomes. As far back as 1954 in Paul Meehl’s book, “Clinical versus Statistical Prediction”; it was concluded that psychoanalysts attempting to predict their patients' progress did far poorer in their predictions than a relatively simple logarithm. If applied properly, predictability can be increased exponentially. Tversky and Kahneman found correcting the fallible errors by adding additional variables would result in more accurate psychological predictions. They also pointed to Charles Darwin, who suggested that man’s brain is part of an incomplete evolution, which has not yet fully evolved. The brain’s evolution is a rather slow and dynamic process in terms of both time and perception. They compared it to a naïve lawyer trying to convince an uninformed jury regarding the innocence of their client. Our naïve brain is simply unable to process intricate multi-variable equations.

Their work remains a work in progress. As time passes and our sophistication with artificial intelligence and complex computer processing develops, we will move far closer to making more accurate judgments and decisions. However, it was this dynamic duo whose seminal research and groundbreaking discoveries changed the academic world of many different disciplines. Their unlikely personalities but synergistic collaborative energies yielded a new world of applications to every component of our world. For example, it will affect sports like baseball and football decisions, war, knotty multiple-choice decisions, and societal quagmires. Rather than relying on the gut and intuition, by using the tools of systematic and verifiable data formulated by mathematical equations, we can revolutionize medicine, governance, sports, psychology, education, politics, agricultural, and ecology. It is unfortunate that their influence has yet to have a dramatic effect on most government leaders and politics. Also, it has exerted only a minimal effect upon many corporate leaders and enterprises.

 

SUMMARY and the NOBEL PRIZE

Together Tversky and Kahneman invented a new and unusual statistical test framed in economics, statistics, psychology, and probability theory. Their seminal work demonstrated that even trained scientists and economists were generally prone to misinterpretation and mental errors. They were able to conclude that intuitive, speculative expectations and inaccurate perceptions were error bound. Their findings suggested that when individuals make judgments or decisions, the results are based on models already in their minds. Human judgments are perceptually distorted because of these previously-stored spurious memories. 

Lack of factual analysis becomes the focus and major culprit of human errors. Instead, individuals rely on heuristics referred to as “discovering by limited problem-solving.” Tversky and Kahneman proceeded to solve very complex problems by determining how people make decisions by the use of logarithmic equations.

Once Tversky and Kahneman determined rules of thumb, they were able to achieve a more accurate methodology using new decision-making paradigms. For example, the use of praise or castigation, based on performance. It can be applied to political choices, medical diagnoses, or economic outcomes. Amos and Danny initially began studying judgments and later proceeded to research specific decision-making. After concluding that most decisions are actually gut feelings, they chose to discern more accurate methods that were consistently more successful in decision-making.

In their progress, they determined that most people preferred not to lose but prefer safety and security, so they developed “Risk – Value Theories.” Most people, especially economists, prefer to take a sure bet than a possible loss. They soon changed from Risk-Value to “Prospect Theory.” What eventually evolved was understanding how individuals create their own alternative reality by UNDOING REALITY (often through rationalization) in order to avoid pain, frustration, and failure. Thus, the creation of the “Undoing Project.” That is, in order to make more reliable decisions, the previously biased assumptions need to be “undone.” This can only be accomplished by eliminating them and substituting the factual variables determined necessary for that particular decision. 

Ultimately, it was the genius of Danny Kahneman’s paper presented at the University of Michigan that finalized the chance for a Nobel Prize. Danny’s final paper severed their relationship. Amos, who had basically taken all credit, died a short time later. Danny was awarded the Nobel Prize in Economic Science in 2002. 

 

In October 2017, it was announced that the latest Nobel Prize winner was another psychologist, Dr. Richard Thaler of the University of Chicago. He, like Drs. Tversky and Kahneman made his contribution in the field of behavioral economics by demonstrating how human traits affect “rational” markets. Dr. Thaler piggy-backed on prior behavioral economists’ research studies, including Tversky and Kahneman, to conclude that a person’s impulsivity can lead not only to poor decision making but potential national and international disasters.