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Arbitrary Coherence

I am reading “Predictably Irrational” about how we often make decisions not based on rational criteria w/o knowing it.   I have been interested the effects of irrational choices and random chance in decision making for many years.  If you recognize your bias and sources of uncertainty, you can make better decisions.   The down side of recognizing these limitations is … recognizing these limitations.   Everybody likes to believe they are rational and responsible.  It is also very hard to come to grips with the uncertainly inherent in all decisions.   

Uncertainty is part of ALL decisions.   If everything is cut and dry certain, there is no need for a decision.   You can just go with an ordinary rule of thumb or habit.  I don’t really decide to put on my seatbelt or brush my teeth in the morning.  I just do it.   You don’t want to make complicated decisions about every little event.  It would drive you crazy. But the habits and routines that easy life also can be traps.

Theory in decision making is starting to catch up with what many persuaders and decision makers have known intuitively for years.   Take the marketing example when a store offers good-better-best in a product line.    Markets know that given three choices, most people are likely to choose the middle one unless they have a strong prior preference. Clever marketers have the highest margin on the middle one. But how does this work?

It has to do with setting an anchor.   All values are really arbitrary. What you pay for a product is what you and others are willing to pay.  There is no “real” value.   How do you know what to pay?  By comparison.   But that comparison doesn’t need to be rational.   When you go out to buy something, you often don’t know what it is “worth.”   If the merchant can fix a price of say $100 in your mind, when he offers $100-10 or $90 you think it is a good deal.   If you had been fixed on $80 it would be a bad deal.  That is why the three choices work.  Few people buy the cheap one and almost nobody buys the most expensive.  The comparison makes you think the middle one has the reasonable price.  

We do that all the time with everything. We base our estimates on relative prices and we are arbitarily consistent among them. It is a good idea sometimes to ask yourself what it is you really want and make decisions based on them.  This is easier said than done.   Effective people do it better than the success-challenged, but nobody is as rational as he thinks.

A lot of life is habit and random chance.  But if you recognize what you cannot control, you can have better control over the other things. If you recognize the role of chance, you can arrange your affairs in to take advantage of the probabilities. They say luck is where preparation meets opportunity.   

I recently finished “Outliers” by Malcolm Gladwell.   He wrote “the Tipping Point,” which was a very good book and “Blink,” not so much.  I didn’t find much new in the book, but Gladwell puts it together well and tells good stories.     Gladwell, IMO, takes the analysis a bit too far.  It is true that there are more people who COULD do particular jobs than CAN do them.   This is the story of life.   More things always can happen than do happen.     No doubt the real winners have lots of advantages and luck.   Very often, however, you can find these only in retrospect.   There is dynamic where successful people both take advantage of opportunities and create them.     The other problem with outliers is general is the small numbers lead to deceptive conclusions.    It stands to reason the very few or the one at the very top required lots of talent, advantages and a string of extraordinarily good luck.   These guys are by their nature unrepresentative.    There is often no useful lesson to be learned. 

I read the biography of Eisenhower a while back.  He was a moderately successful officer, but expected to retire as a colonel at best.  Then the war came.   Eisenhower and many of his classmates rose to high levels in the army.  Had they been born five years later or five years earlier few of them would have been so successful and none of them would have reached the five star ranks.    You cannot really use that information and it has no predictive value.    Nobody could plan Eisenhower’s career.   It would be more useful to study the moderately successful over a longer period.   Those are the guys who would be in a position to jump ahead IF the opportunity came.

None of us is around long enough to get what we “deserve.”  In the FS, my guess is that if you had a career spanning 200 years, you would probably end up where you belong, as random chance variations might even out.  I think the variation tends to go mostly in one direction, however.   I know some ambassadors who could have been unsuccessful if not for a single lucky break that made other breaks possible, accreting small advantages until they became big ones.     On the other hand, there on people on whom lucky breaks are wasted. 

Gladwell says that success depends on practice (he says it requires around 10,000 hours) and talks about the lucky breaks that gave various top   performers the opportunity.   This is probably true, but not everybody is willing or able to put in those long hours.  Hard work matters too.


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