Irrational? Decisions and decision making in context

Nassim Nicholas Taleb, author of Fooled by Randomness:

Finally put my finger on what is wrong with the common belief in psychological findings that people “irrationally” overestimate tail probabilities, calling it a “bias”. Simply, these experimenters assume that people make a single decision in their lifetime! The entire field of psychology of decisions missed the point.

His argument seems to be that risks seem different if you view them from a lifetime perspective, where you might make choices about the same risk again and again, rather than consider as one-offs. What might be a mistake for a one-off risk could be a sensible strategy for the same risk repeated in a larger set.

He goes on to take a swipe at ‘Nudges’, the idea that you can base policies around various phenomena from the psychology of decision making. “Clearly”, he adds, “psychologists do not know how to use ‘probability'”.

This is maddeningly ignorant, but does have a grain of truth to it. The major part of the psychology of decision making is understanding why things that look like bias or error exist. If a phenomenon, such as overestimating low probability events, is pervasive, it must be for a reason. A choice that looks irrational when considered on its own might be the result of a sensible strategy when considered over a lifetime, or even over evolutionary time.

Some great research in decision making tries to go beyond simple bias phenomenon and ask what underlying choice is being optimised by our cognitive architecture. This approach gives us the Simple Heuristics Which Make Us Smart of Gerd Gigerenzer (which Taleb definitely knows about since he was a visiting fellow in Gigerenzer’s lab), as well as work which shows that people estimate risks differently if they experience the outcomes rather than being told about them, work which shows that our perceptual-motor system (which is often characterised as an optimal decision maker) has the same amount of bias as our more cognitive decisions; and work which shows that other animals, with less cognitive/representational capacity, make analogues of many classic decision making errors. This is where the interesting work in decision making is happening, and it all very much takes account of the wider context of individual decisions. So saying that the entire field missed the point seems…odd.

But the grain of truth the accusation is that the psychology of decision making has been popularised in a way that focusses on one-off decisions. The nudges of behavioural economics tend to be drammatic examples of small interventions which have large effects in one-off measures, such as giving people smaller plates makes them eat less. The problem with these interventions is that even if they work in the lab, they tend not to work long-term outside the lab. People are often doing what they do for a reason – and if you don’t affect the reasons you get the old behaviour reasserting itself as people simply adapt to any nudge you’ve introduced Although the British government is noted for introducing a ‘Nudge Unit‘ to apply behavioural science in government policies, less well known is a House of Lords Science and Technology Committee report ‘Behavioural Change’, which highlights the limitations of this approach (and is well worth reading to get an idea of the the importance of ideas beyond ‘nudging’ in behavioural change).

Taleb is right that we need to drop the idea that biases in decision making automatically attest to our irrationality. As often as not they reflect a deeper rationality in how our minds deal with risk, choice and reward. What’s sad is that he doesn’t recognise how much work on how to better understand bias already exists.