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Similarly, if you use childhood achievements to predict grades in college without regressing your predictions toward the mean, you will more often than not be disappointed by the academic outcomes of early readers and happily surprised by the grades of those who learned to read relatively late.
The ultimate test of an explanation is whether it would have made the event predictable in advance.
Love this.
Because adherence to standard operating procedures is difficult to second-guess, decision makers who expect to have their decisions scrutinized with hindsight are driven to bureaucratic solutions
Because of the halo effect, we get the causal relationship backward: we are prone to believe that the firm fails because its CEO is rigid, when the truth is that the CEO appears to be rigid because the firm is failing. This is how illusions of understanding are born.
Because luck plays a large role, the quality of leadership and management practices cannot be inferred reliably from observations of success.
“Let’s not fall for the outcome bias. This was a stupid decision even though it worked out well.”
Our predictions were completely nonregressive—we had no reservations about predicting failure or outstanding success from weak evidence. This was a clear instance of WYSIATI. We had compelling impressions of the behavior we observed and no good way to represent our ignorance of the factors that would eventually determine how well the candidate would perform as an officer.
Subjective confidence in a judgment is not a reasoned evaluation of the probability that this judgment is correct. Confidence is a feeling, which reflects the coherence of the information and the cognitive ease of processing it. It is wise to take admissions of uncertainty seriously, but declarations of high confidence mainly tell you that an individual has constructed a coherent story in his mind, not necessarily that the story is true.
The research suggests a surprising conclusion: to maximize predictive accuracy, final decisions should be left to formulas, especially in low-validity environments. In admission decisions for medical schools, for example, the final determination is often made by the faculty members who interview the candidate. The evidence is fragmentary, but there are solid grounds for a conjecture: conducting an interview is likely to diminish the accuracy of a selection procedure, if the interviewers also make the final admission decisions. Because interviewers are overconfident in their intuitions, they
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This chapter argued STRONGLY for rubrics in interviewing. Your gut is just not as good as dead-simple formulas.
Simple equally weighted formulas based on existing statistics or on common sense are often very good predictors of significant outcomes. In a memorable example, Dawes showed that marital stability is well predicted by a formula: frequency of lovemaking minus frequency of quarrels You don’t want your result to be a negative number.
One day over breakfast, a medical resident asked how Dr. Apgar would make a systematic assessment of a newborn. “That’s easy,” she replied. “You would do it like this.” Apgar jotted down five variables (heart rate, respiration, reflex, muscle tone, and color) and three scores (0, 1, or 2, depending on the robustness of each sign). Realizing that she might have made a breakthrough that any delivery room could implement, Apgar began rating infants by this rule one minute after they were born. A baby with a total score of 8 or above was likely to be pink, squirming, crying, grimacing, with a
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Fantastic example of how relying less on gut intuition yielded significant improvements.
The story of a child dying because an algorithm made a mistake is more poignant than the story of the same tragedy occurring as a result of human error, and the difference in emotional intensity is readily translated into a moral preference.
I decided on a procedure in which the interviewers would evaluate several relevant personality traits and score each separately. The final score of fitness for combat duty would be computed according to a standard formula, with no further input from the interviewers. I made up a list of six characteristics that appeared relevant to performance in a combat unit, including “responsibility,” “sociability,” and “masculine pride.” I then composed, for each trait, a series of factual questions about the individual’s life before his enlistment, including the number of different jobs he had held, how
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Several hundred interviews were conducted by this new method, and a few months later we collected evaluations of the soldiers’ performance from the commanding officers of the units to which they had been assigned. The results made us happy. As Meehl’s book had suggested, the new interview procedure was a substantial improvement over the old one. The sum of our six ratings predicted soldiers’ performance much more accurately than the global evaluations of the previous interviewing method, although far from perfectly. We had progressed from “completely useless” to “moderately useful.”
Excellent.
A vast amount of research offers a promise: you are much more likely to find the best candidate if you use this procedure than if you do what people normally do in such situations, which is to go into the interview unprepared and to make choices by an overall intuitive judgment such as “I looked into his eyes and liked what I saw.”
This is a common pattern: people who have information about an individual case rarely feel the need to know the statistics of the class to which the case belongs.
A CFO who informs his colleagues that “there is a good chance that the S&P returns will be between –10% and +30%” can expect to be laughed out of the room. The wide confidence interval is a confession of ignorance, which is not socially acceptable for someone who is paid to be knowledgeable in financial matters. Even if they knew how little they know, the executives would be penalized for admitting it. President Truman famously asked for a “one-armed economist” who would take a clear stand; he was sick and tired of economists who kept saying, “On the other hand…”
people and firms reward the providers of dangerously misleading information more than they reward truth tellers.
The main virtue of the premortem is that it legitimizes doubts.
See future quotes from the book that discuss the value of organizations.
As the psychologist Daniel Gilbert observed, disbelieving is hard work, and System 2 is easily tired.
“He weighs losses about twice as much as gains, which is normal.”
Selling goods that one would normally use activates regions of the brain that are associated with disgust and pain.
Knetsch asked two classes to fill out a questionnaire and rewarded them with a gift that remained in front of them for the duration of the experiment. In one session, the prize was an expensive pen; in another, a bar of Swiss chocolate. At the end of the class, the experimenter showed the alternative gift and allowed everyone to trade his or her gift for another. Only about 10% of the participants opted to exchange their gift. Most of those who had received the pen stayed with the pen, and those who had received the chocolate did not budge either.
The brains of humans and other animals contain a mechanism that is designed to give priority to bad news. By shaving a few hundredths of a second from the time needed to detect a predator, this circuit improves the animal’s odds of living long enough to reproduce.
The concessions you make to me are my gains, but they are your losses; they cause you much more pain than they give me pleasure.
Improbable outcomes are overweighted—this is the possibility effect. Outcomes that are almost certain are underweighted relative to actual certainty.
lottery ticket is the ultimate example of the possibility effect. Without a ticket you cannot win, with a ticket you have a chance, and whether the chance is tiny or merely small matters little. Of course, what people acquire with a ticket is more than a chance to win; it is the right to dream pleasantly of winning.
good attorney who wishes to cast doubt on DNA evidence will not tell the jury that “the chance of a false match is 0.1%.” The statement that “a false match occurs in 1 of 1,000 capital cases” is far more likely to pass the threshold of reasonable doubt.
The typical short-term reaction to bad news is increased loss aversion. Investors who get aggregated feedback receive such news much less often and are likely to be less risk averse and to end up richer.
Daniel Gilbert and his colleagues provocatively claim that people generally anticipate more regret than they will actually experience, because they underestimate the efficacy of the psychological defenses they will deploy—which they label the “psychological immune system.” Their recommendation is that you should not put too much weight on regret; even if you have some, it will hurt less than you now think.
“We are hanging on to that stock just to avoid closing our mental account at a loss. It’s the disposition effect.”
Would you accept a gamble that offers a 10% chance to win $95 and a 90% chance to lose $5? Would you pay $5 to participate in a lottery that offers a 10% chance to win $100 and a 90% chance to win nothing? First, take a moment to convince yourself that the two problems are identical.
Reframing is effortful and System 2 is normally lazy. Unless there is an obvious reason to do otherwise, most of us passively accept decision problems as they are framed and therefore rarely have an opportunity to discover the extent to which our preferences are frame-bound rather than reality-bound.
Decision makers tend to prefer the sure thing over the gamble (they are risk averse) when the outcomes are good. They tend to reject the sure thing and accept the gamble (they are risk seeking) when both outcomes are negative.
Peak-end rule: The global retrospective rating was well predicted by the average of the level of pain reported at the worst moment of the experience and at its end. Duration neglect: The duration of the procedure had no effect whatsoever on the ratings of total pain.
The experiencing self is the one that answers the question: “Does it hurt now?” The remembering self is the one that answers the question: “How was it, on the whole?”
What we learn from the past is to maximize the qualities of our future memories, not necessarily of our future experience. This is the tyranny of the remembering self.
A story is about significant events and memorable moments, not about time passing. Duration neglect is normal in a story, and the ending often defines its character.
Nothing in life is as important as you think it is when you are thinking about it.
The focusing illusion creates a bias in favor of goods and experiences that are initially exciting, even if they will eventually lose their appeal. Time is neglected, causing experiences that will retain their attention value in the long term to be appreciated less than they deserve to be.
“She thought that buying a fancy car would make her happier, but it turned out to be an error of affective forecasting.”
The neglect of duration combined with the peak-end rule causes a bias that favors a short period of intense joy over a long period of moderate happiness.
System 1 is indeed the origin of much that we do wrong, but it is also the origin of most of what we do right—which is most of what we do. Our thoughts and actions are routinely guided by System 1 and generally are on the mark. One of the marvels is the rich and detailed model of our world that is maintained in associative memory: it distinguishes surprising from normal events in a fraction of a second, immediately generates an idea of what was expected instead of a surprise, and automatically searches for some causal interpretation of surprises and of events as they take place.
Organizations are better than individuals when it comes to avoiding errors, because they naturally think more slowly and have the power to impose orderly procedures. Organizations can institute and enforce the application of useful checklists, as well as more elaborate exercises, such as reference-class forecasting and the premortem. At least in part by providing a distinctive vocabulary, organizations can also encourage a culture in which people watch out for one another as they approach minefields.
This is a very interesting way to frame the value of organizations.
Whatever else it produces, an organization is a factory that manufactures judgments and decisions. Every factory must have ways to ensure the quality of its products in the initial design, in fabrication, and in final inspections. The corresponding stages in the production of decisions are the framing of the problem that is to be solved, the collection of relevant information leading to a decision, and reflection and review. An organization that seeks to improve its decision product should routinely look for efficiency improvements at each of these stages.
There is a direct link from more precise gossip at the watercooler to better decisions. Decision makers are sometimes better able to imagine the voices of present gossipers and future critics than to hear the hesitant voice of their own doubts. They will make better choices when they trust their critics to be sophisticated and fair, and when they expect their decision to be judged by how it was made, not only by how it turned out.
