Lectue 9: Temporal Discounting—Now or Later?
Now consider a fundamental challenge in decisions involving time: temporal discounting, or the human tendency to view rewards as worth less in the future than they are in the present. Study real-life examples of this phenomenon, three explanations for why it occurs, and key approaches to making better time-related decisions.
Lecture 8: Ambiguity—The Unknown Unknowns
In behavioral economics, “ambiguity” refers to conditions in decision making in which we do not know and cannot estimate the probabilities of potential outcomes. Here, investigate three circumstances in decision making that produce ambiguity: “hidden information,” “asymmetrical knowledge,” and “unfamiliar contexts.” Then, learn a two-step approach for dealing effectively with ambiguity.
Interesting applications to insurance here and some good reasons why the market and capitalism won’t help fix some problems.
Lecture 7: Risk—The Known Unknowns
Tolerance for risk is another fundamental element of decision making. Learn how behavioral economics evaluates “risk aversion” and “risk seeking” in both economic and personal contexts, and grasp the role of perceived benefits and perceived risks in explaining risk-taking behavior and choices. Finally, study two basic principles for managing risk.
Lecture 6: Probability Weighting
"Probability weighting” describes how people tend to convert objective information about probability into a subjective sense of what may happen—which can lead to bias and error. Observe how this applies to real-life situations such as buying life or travel insurance, and learn two tools to change how you deal with probabilities.
Lecture 5: Range Effects—Changing the Scale
The principle of “range effects” describes how the relative difference between two quantities becomes less meaningful as the absolute values of those quantities get larger. Grasp how this phenomenon explains apparent inconsistencies in human behavior, and how its existence is linked to our biology. Learn specific steps you can take to minimize its unwanted influence on your decisions.
Grasp how behavioral economics uses methods from both economics and psychology to better understand biases and anomalies in decision making—factors that “rational choice” models don’t explain. Learn three core experimental principles of behavioral economics, and about Prospect Theory, which helps explain what human beings value.
Still some overview and basic intro. Hope it picks up soon.
Begin by examining “rational choice” models of decision making from traditional economics, which assume consistent, foresighted, and self-interested decision makers. Then consider how this concept fails to explain many human decisions that appear counterintuitive or paradoxical. Identify two fundamental limitations that challenge our decision-making process.
Fairly facile introduction from my perspective. Didn’t learn anything new here.
When chimpanzees were first seen stripping the leaves off slender branches and inserting them into termite nests to fish for the insects, people marvelled. Our nearest relatives, using tools to get nutritious food. Imagine, then, the surprise among primatologists when capuchin monkeys, not nearly as closely related to us, proved equally adept at tool use. Capuchins select stones that can be half as heavy as they are and carry them long distances to use as nutcrackers.
Elisabetta Visalberghi is a biologist based in Rome, who published the first scientific observations of tool use in capuchins. That is just a part of her far-reaching investigations into how capuchins, which are omnivorous, go about deciding which foods are worth eating and which are best avoided.
The results may surprise you.
- Cover photo of Chuchu and her infant by Elisabetta Visalberghi.
- The video I mentioned in the show is The bearded capuchin monkeys of Fazenda Boa Vista, available from the CNR Primate Center in Rome. There are some other videos on Vimeo.
- The CNR Primate Center website.
- Cashews really are a problem from the people who have to process them. This article is very recent.
- Banner from a photo by Allan Hopkins
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Shoshana Zuboff is the author of The Age of Surveillance Capitalism: The Fight for a Human Future at the New Frontier of Power. She talks with Leo Laporte about how social media is being used to influence people.
I can’t wait to get the copy of her book.
Folks in the IndieWeb movement have begun to fix portions of the problem, but Shoshana Zuboff indicates that there are several additional levels of humane understanding that will need to be bridged to make sure their efforts aren’t just in vain. We’ll likely need to do more than just own our own data, but we’ll need to go a step or two further as well.
The thing I was shocked to not hear in this interview (and which may not be in the book either) is something that I think has been generally left unmentioned with respect to Facebook and elections and election tampering (29:18). Zuboff and Laporte discuss Facebook’s experiments in influencing people to vote in several tests for which they published academic papers. Even with the rumors that Mark Zuckerberg was eyeing a potential presidential run in 2020 with his trip across America and meeting people of all walks of life, no one floated the general idea that as the CEO of Facebook, he might use what they learned in those social experiments to help get himself (or even someone else) elected by sending social signals to certain communities to prevent them from voting while sending other signals to other communities to encourage them to vote. The research indicates that in a very divided political climate that with the right sorts of voting data, it wouldn’t take a whole lot of work for Facebook to help effectuate a landslide victory for particular candidates or even entire political parties!! And of course because of the distributed nature of such an attack on democracy, Facebook’s black box algorithms, and the subtlety of the experiments, it would be incredibly hard to prove that such a thing was even done.
I like her broad concept (around 43:00) where she discusses the idea of how people tend to frame new situations using pre-existing experience and that this may not always be the most useful thing to do for what can be complex ideas that don’t or won’t necessarily play out the same way given the potential massive shifts in paradigms.
Also of great interest is the idea of instrumentarianism as opposed to the older ideas of totalitarianism. (43:49) Totalitarian leaders used to rule by fear and intimidation and now big data stores can potentially create these same types of dynamics, but without the need for the fear and intimidation by more subtly influencing particular groups of people. When combined with the ideas behind “swarming” phenomenon or Mark Granovetter’s ideas of threshold reactions in psychology, only a very small number of people may need to be influenced digitally to create drastic outcomes. I don’t recall the reference specifically, but I recall a paper about the mathematics with respect to creating ethnic neighborhoods that only about 17% of people needed to be racists and move out of a neighborhood to begin to create ethnic homogeneity and drastically less diversity within a community.
Also tangentially touched on here, but not discussed directly, I can’t help but think that all of this data with some useful complexity theory might actually go a long way toward better defining (and being able to actually control) Adam Smith’s economic “invisible hand.”
There’s just so much to consider here that it’s going to take several revisits to the ideas and some additional research to tease this all apart.
We build a simple, but powerful and intuitive, model for when a hockey coach should pull the goalie when trailing. When the model reports that the coaches aren’t doing it nearly early enough, we then ask why, and take away some key lessons for portfolio and risk management, and business in general.