Section 7.1. Bounded Irrationality

7.1. Bounded Irrationality

But let's forget AI, for a time, and delve instead into the depths of human irrationality, beginning with some well-documented decision-making traps.^[*]

^[*] "The Hidden Traps in Decision Making" by John S. Hammond, Ralph L. Keeney, and Howard Raiffa. Harvard Business Review, September/October 1998.

Anchoring

When considering a decision, our minds are unduly influenced by the first information we find. Initial impressions and data anchor subsequent judgments.

Confirmation

Through selective search and perception, we subconsciously seek data that supports our existing point of view, and avoid contradictory evidence.

Memorability

We are overly influenced by recent or dramatic events. Repetition from one or multiple sources can also influence belief, memory, and judgment.

Status quo

Decision makers exhibit a strong bias toward conservatism, inertia, and alternatives that perpetuate the status quo. We look for reasons to do nothing.

Sunk cost

Unwilling, consciously or not, to admit past mistakes, we make decisions in a way that justifies past choices.

We ask the wrong questions and trust the wrong sources. We substitute optimism for data. And we are influenced by peer pressure and groupthink. Decisions shape our lives, and yet they're often made in the dark, beneath the comforting veneer of rationality.

In Blink, Malcolm Gladwell puts a positive spin on what he calls "thin slicing" or "the ability of our unconscious to find patterns in situations and behavior based on very narrow slices of experience."^[] He contends that "if we are to improve the quality of the decisions we make, we need to accept the mysterious nature of our snap judgments."^] I disagree. Thin slicing is not infallible. It can have disastrous, regrettable results. And, it need not remain mysterious. We can learn more about how and why our brains work the way they do, and we can use that information to modify our behavior accordingly.

] ^[] Gladwell, p.52.

In Harvard Business Review, Alden Hayashi describes the role of instinct and intuition in executive decision-making, and investigates their biological basis:

First, your mind continuously processes information that you are not consciously aware of, not only when you're asleep and dreaming but also when you're awake. This helps explain the "aha" sensation you experience when you learn something that you actually already knew....Second, your brain is intricately linked to other parts of your body through an extensive nervous system as well as through chemical signals...what we call the "mind" is really this intertwined system of brain and body. This, then, helps explain why intuitive feelings are frequently accompanied by physical reactions.^[*]

^[*] "When to Trust Your Gut" by Alden M Hayashi. Harvard Business Review, February 2001.

Suddenly, we find ourselves back at the crossroads of evolutionary psychology and neuroscience, with brains designed by natural selection to solve ancient problems. As Leda Cosmides and John Tooby explain, "form follows function: the properties of an evolved mechanism reflect the structure of the task it evolved to solve."^[] While our rational neocortex can refocus attention from snakes to semantics, our passionate amygdala is trapped in the mind-body of the hunter-gatherer. And, its often our most vital decisions about family, career, and health that are most influenced by emotion.

^[] "Better than Rational: Evolutionary Psychology and the Invisible Hand by Leda Cosmides and John Tooby. The American Economic Review, vol. 84, no. 2.

In the face of such "bounded irrationality ," it's tempting to seek solace in the wisdom of crowds and the knowledge that "even if most of the people within a group are not especially well-informed or rational, it can still reach a collectively wise decision."^[] This emergent, self-organizing network effect yields the predictive power of stock markets, and theres an irresistible elegance to the idea of collective intelligence:

^[] Natural selection's invisible hand created the structure of the human mind, and the interaction of these minds is what generates the invisible hand of economics.^[§]

^[§] Cosmides and Tooby, p. 328.

But, like thin slices, invisible hands can harm as well as help. Markets crash. Elections fail. Wars erupt. Google doesn't always deliver the best results. We should proceed cautiously before placing our lives in the invisible hands of smart mobs. The wisdom of crowds does not negate the value of bright individuals and informed decisions. On the contrary, in today's society, information seeking and insight through pattern recognition are closely linked with intelligence, innovation, and success. In particular, the Internet offers the ability to make wise decisions through access to myriad data types and sources.