Friday, November 15, 2013

4 (Related) Thoughts on Decision Making - Notes to Self

#1 Our ability to Experience feelings is important for decision making

In Alister Maclean's novel "Ice Station Zebra", Captain of the nuclear submarine, Commander Swanson is shown as a person who took at the right decisions at the right time, while keeping his emotions under control. Many such portrayals can be seen across popular cinema and separation of Emotions and rationality is a dominant idea in western society. Here is the bad news.  Research in science has shown that such a separation is not only impossible, but also  undesirable.  This was discovered by a Neuroscientist by name Antonio Damasio. He experimented on a brain damaged patient who couldn't experience feelings, but had all the faculties of rational behaviour- attention, memory and logic, intact. The patient tested couldn't make successful every day decsions.

#2 The decisions human beings make can be classified into two systems

Daniel Kahneman (Nobel prizes- economic-sciences- Year 2002) describes two systems of decision making - he calls system 1 as 'experiential system' and characterizes it as fast, automatic, effortless, associative and difficult to control or modify. System 2 is 'Analytical system' and is slower, serial, effortful and deliberately controlled. Kahneman's Nobel Prize Lecture  can be read here

Here is a table that shows the difference between System 1 and System 2

Experiential System
Analytical System
Affective: Pleasure pain oriented
Logical Reason oriented
Connections are Associationistic – (
Connections are Logical
Behavior mediated by vibes from  past experiences
Behavior mediated by constant appraisal of events
Encodes reality in concrete images, metaphors and narratives
Encodes reality in abstract symbols, words, and numbers
More rapid processing: Oriented towards immediate action
Slower processing:  Oriented towards delayed action
Slower to change: change happens with repetitive or intense experience
Changes more rapidly: Changes with the speed of thought
Uses generalization and stereo typical thinking
Highly differentiated
More crudely integrated: dissociative and emotional
More highly integrated – cross context processing
Experienced passively and pre-consciously: we are seized by our emotions
Experienced actively and consciously – we are in control of our thoughts
Self- evidently validating – experience is believing
Requires justification via logic and evidence

As per Kahneman, system 1 uses perception and intuition to generate impressions of objects. These impressions are involuntary,and an individual may not be able to verbalize them. And system 2 is involved in all judgements, whether or not an individual is making decisions explicitly.  According to Kahneman system 1 is a subset of system 2 as Intuition is a judgement that reflects an impression. So again it is very clear that emotions (system 1) can't be separated from decisions ( system 2)

So, for good decision making, we have to be clear about what influences our impressions and how these impressions shape perceptions of risk and reward taking ( all decisions involve these two). To explain this, affect theory comes into picture

#3 Affect Theory  (How we feel about a decision ( happy/sad) influences our decision)
According to psychiatrists, the main shapers of our impression is what is called as 'affect'. Affect is the 'goodness' or 'badness' we feel based on a stimulus. For example, a word like "gold" generates a positive affect while a word like 'poison' generates negative affect.

Affect operates in realm of system 1 and hence is rapid and automatic.And affect often directs our impressions in a reasonable way: most things we feel good about are good. But affect, like other rules of thumb ( or heuristics) has biases.

When people like an idea, they deem risks low and returns high irrespective of more objective probabilities. when they dislike the idea, the  inverse is true - risk is high and reward is low. good decision makers aren't swayed by affect. for e.g. lottery players tend to have the same feeling about playing the lottery whether the probability of winning is one-in-ten million or one-in-ten thousand because the payoff is so affective.

#4 Experiential systems are not fail-proof

Experiential systems function fairly well and are very much needed for our day to day decision making ( which side of the bed to get up or which foot to put forward) and fail when they are manipulated by outside forces. To know more on the ways our experiential system can be manipulated and how to avoid falling prey,  please refer to this post on the book Influence by Robert Cialdini.
Experiential system also fail in non-linear or non-stationary systems. In non-linear systems, cause and effect are not proportionally linked. As a result, outcomes can be counter intuitive. In non stationary systems, the underlying statistical properties of the system change over time and this means that the past is not a good predictor of the future. Projects are a good example of this and people should take a very methodical and self aware approach to judging expected values.

Note: This is put together based on my reading of Kahnemann, Cialdini and Taleb's 'Fooled by Randomness' and Michael Maboussin's 'More than you know'

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