Posts Tagged ‘critical thinking’
Perceived safety increases risk-taking
In many senses, life is a series of risk/reward calculations. Choosing which school to attend, buying a house, and choosing a spouse are all risky endeavors. According to the Peltzman effect, also known as risk compensation, people have a tendency to take greater risks when perceived safety increases.
I’m sure this conclusion comes as no surprise to you. Toddlers learning to walk soon start to run, or go down stairs, with the expected results. Teen drivers (particularly teen boys) get comfortable behind the wheel and dart off in a burst of testosterone, occasionally ending up in dire circumstances. This phenomenon was very common the Formula 2 racing series. Formula 2 is a development series for the global F1 competition, which is viewed as the pinnacle of motor racing. The problem is that the Formula 2 series was plagued with multiple accidents resulting from brash moves made by the young drivers. The reason? Analysts, including current F1 drivers, argued that Formula 2 racers were overly aggressive because their cars are so safe. Romain Grosjean, a Formula 2 driver who now competes for the Renault F1 team, was fined several times and sat out for an F1 race after being at fault in repeated incidents following his promotion.
Investors make similar risk/reward calculations. Wall Street investment bankers often take significant risks because their compensation schemes reward short-term success far more than they punish failure. Why would they take such risks? Because it’s part of their overall strategy. In the Wharton School’s corporate finance MOOC I’m taking on Coursera, Professor Franklin Allen argues that one’s sense of risk is inverted when you think of investing in a portfolio of stocks rather than in a single stock. For example, imagine that you buy stock in an oil company that finds oil in 1 out of 20 wells, and each producing well returns $100. You have a hit rate of 5% which, multiplied by the return of a good well, yields an expected value of $5. Now imagine that you have a separate investment in a research company that has a 1 in 50 chance of returning $250, otherwise gaining you nothing. This investment has a similar expected value to the previous example, because 2% (1 in 50) of $250 is $5.
Which of the two investments is less risky? If you look at the expected values, they’re equally risky. However, Professor Allen argues that, when considered as part of a portfolio, the latter investment is less risky because of its higher potential return. The crux of the argument is that a diversified portfolio with numerous independent risks will tend to have a higher return than a collection of pedestrian investments with relatively low risk. The end result is safety in numbers. Just as a fair coin flipped 1,000 times will tend to show heads in about 50% of the trials, investments with independent risks will tend to earn out at their expected rate, assuming you adjudged the risks correctly in the first place. Statistics on investment return since the year 1900 bear out his argument.
Improvisers can and should take risks to make great scenes. We can do it without fear because we know our fellow players will be there to make what we say and do the right thing. Similarly, businesses can take risks as part of a diversified portfolio of ideas. Just as you wouldn’t invest in a single stock such as, I don’t know…Enron, you shouldn’t discourage experimentation and risk. That said, you must understand that risks taken within a scene or business are dependent, not independent. There’s only so much we can do to fix things if you go too far overboard. If you can’t spread out your risk, you must moderate it to be successful.
Clustering and Streaks — Real or Imagined?
The folk wisdom that “bad things come in threes” is still popular in the U.S. Whenever two celebrities die on the same day, for example, even the most hardened critical thinker feels the urge to look for the third.
Is clustering real? Do events happen in streaks, or are they just a product of our pattern-seeking brains? George Carlin made fun of the “bad things happen in threes” adage by stating that bad things actually happen in 27’s, noting that “it just takes longer to see the pattern.” You can always find instances of “bad things” in the world to fill out your sets of three, but what does the research say? There have been a lot of studies on the subject, including Koehler and Conley’s “The “Hot Hand” Myth In Professional Basketball”, published in 2003 in the Journal of Sport and Exercise Psychology. The authors examined the National Basketball Association’s long distance shooting contest and looked for statistical aberrations in the sequences of made and missed shots. As in all but a few other studies, they found no significant deviation from chance. When they took each player’s base shooting accuracy into account, the effect disappeared.
Sports are physical contests and even little variations in physical conditions can affect performance, but what about chess? Chess is a mental game played with perfect information. That is, you know everything there is to know about a position and there’s no hidden information, such as a player’s hole cards in poker. As of this writing, I have played 19,738 games of blitz chess (each player has 3 or 5 minutes to make all moves in a game) at the Internet Chess Club since June 27, 2001. As I watch my online chess rating fluctuate from embarrassing to “not bad for me”, I wonder how much the streaks of wins, losses, and draws reflect my abilities and how much is the “luck” of an opponent making some horrible mistake.
The three-year graph of my rating shows huge swings, but the average is right about where I perceive myself as a player. Perhaps my streaks are due to luck. After all, I don’t seriously study the game and play to take a break from other work. The big changes make a strong visual impression, but there are a lot of small shifts in there, too.
Improvisers can make a fun game out of looking for apparent patterns and justifying reasons for believing streaks exist. The lesson for analysts? Carefully examine whether a sequence of events is due to some underlying cause or is just a sequence of events that might be due to chance. That said, given the strength of our innate need to discover patterns, is there any way to dispel what appears to be the myth of the hot hand? In a 2006 review of the literature, Michael Bar-Elia, Simcha Avugosa, and Markus Raab summarized the situation in this way:
As Amos Tversky, who initiated the hot hand research, used to say (cited by Gilovich in an online chat, September, 2002), ‘‘I’ve been in a thousand arguments over this topic, won them all, but convinced no one’’.
Memory and the Recency Effect
It’s tempting to think that knowing about a cognitive bias or logical fallacy makes them immune to it. I’m no exception, but I constantly find myself falling prey to the recency effect, or recency bias. The good news is that I catch myself from time to time — the bad news is that I have no idea how many instances slip through.
The recency effect describes a condition where the most recent information you learned has a disproportionate impact on your opinion about a topic. I find myself watching TV programs or reading articles where the author sets out arguments on an issue and I often think, “Oh, I didn’t know that. I’ll have to revise my opinion.” The rest of the time I think, “Yeah, right” and move on with my day. If the topic’s one I don’t know much about, the information I just learned will affect my view more than it would if I knew a lot about the issue.
As I mentioned in my review of The Gamble, published here and on Technology and Society Book Reviews, the Romney 2012 presidential campaign managers attempted to use the recency effect to their candidate’s advantage. The authors cited a significant body of research showing that political ads sway opinion, but only for a few days at most before viewers’ opinions revert to their personal baselines. The Romney campaign took out a large number of ads in the days before the election in hopes of using the recency effect to their advantage. In fact, the campaign bought the entire available ad inventory in several states. Rather than leave the money in the bank, they bought ads in states they deemed less important.
If you really want to see the recency effect in action, watch the U.S. stock markets whenever major events occur. Every bit of news causes the markets to move as investors try to out-guess each other and make a profit on competitors’ decisions. I’m not sure how much of the action is individual speculators trying to get a jump on the market and others trying to guess the reactors’ reactions (and so on up the chain), but the short-term volatility can be astonishing.
Confirmation Bias Proves What You Already Knew
Human beings deal with complexities by creating mental models. Our models are necessarily simpler than reality and are based on our experiences. These considerations imply two things. First, models are intensely personal constructs. Second, personal models are difficult to change. When we find something that works, we’re reluctant to change it.
There’s a strong temptation to fit what we see into our models rather than invest the effort (and ego) into admitting our model is wrong, or at least incomplete. Oswald and Grosjean define confirmation bias as “the tendency to search for, interpret and remember information in a way that confirms one’s preconceptions.” You probably know someone who engages in impressive mental gymnastics to fit everything into their world view.
In business, falling prey to confirmation bias can cost you money. If you developed a process that worked for years but doesn’t meet your company’s needs, you must be open to change. If you interpret critiques as personal attacks, you’re much less likely to improve your processes.
You can take advantage of confirmation bias to create interesting characters or “find the game” within an improv scene. Improv scenes run on justifying why something someone else said or did is true and important. If your character’s perspective uses “Yes, and…” to bring everything into his or her world view, you can be an interesting character and entertain your audience. Like in business, you have to be careful not to let your internal game hurt your team’s performance, but it’s a fun approach to take on occasion.
The exercise “Your Place or Mine?” provides an interesting context for justification and fitting incidents into your character’s world view. In this exercise, you and a scene partner play characters in two different locations. For example, one of you might be a fast food worker in McDonald’s and the other an archery instructor on the range. If the fast food worker hands the archer a french fry, the archer could interpret it as a small arrow and shoot it into a target, which the fast food worker could interpret as throwing the food into a customer’s mouth.
You Might Not Have a Book in You…Yet
A book with your name on the cover is a badge of honor. Many individuals find writing anything longer than an e-mail too painful to contemplate, with good reason: writing your first book-length manuscript is hard.
I’m preparing for some upcoming speaking engagements, so I took the time to re-read Million Dollar Speaking by Alan Weiss. Weiss has made a very (very, very) good living as a speaker and trainer and came highly recommended from a friend who makes a very (very) good living as an entertainer on the college and corporate circuits. In his book, Weiss explodes the myth that says “if you have a speech, you have a book”:
This should be restated as follows: if you have a speech, you have an excruciatingly tiny book. Speaking and writing are discrete skills, sometimes synergistic but not at all equal. Don’t give the published work short shrift: books require extensive research; tight, Jesuit-like logic; brilliant metaphors; and immaculate construction. If that sounds like it doesn’t resemble a lot of books out there, that’s because most books are not very good.
Improspectives runs 126 small-format pages and, according to the word count feature in Microsoft Word, contains 28,807 words. Most business books are 250 pages in length; at 350 words per page, you’re looking at 87,500 words. That’s a lot of information. Consider this: if you speak for an hour at a rate of 150 words per minute, you will have spoken 9,000 words. The spoken word and, by extension, video, are low bandwidth when you’re not presenting graphical content. it’s easier for you to talk for an hour than to write 9,000 words and, yes, video can be more fun to watch (though Weiss gives the example of a speaker whose video showed him writing on an easel pad), but you’re trading your convenience for the amount of information you deliver to your audience.
I dislike giving bad reviews to books, but I did want to give a real-life example of how having a speech or, in this case, a workshop doesn’t mean you have a book. Red Thread Thinking, by Debra Kaye (with Karen Kelly) describes Kaye’s “red thread” approach to finding connections between ideas for profitable innovation. I’ve been in and led enough corporate training sessions to see the value in her approach and believe her workshops would be valuable to many businesses. Unfortunately, so much of the good that comes out a workshop is unspoken and difficult to quantify. Many workshop leaders walk into the room with at most five or six pieces of paper with their outline and rely on the participants to provide the fuel for the day. Even success stories, if you can share them because of confidentiality concerns, can get repetitive when they rely on the same methods.
That’s where Karen Kelly comes in. I don’t know for sure, but I would guess the main author, Debra Kaye, had difficulty generating a manuscript that met the 250-page ideal for business books. The “with” credit on a book indicates the secondary author took on a significant role, which in this case meant lengthening the book by pumping the main author for more talking points, stories, and supporting research. Using that additional input, the professional book doctor can remix material, restating it in slightly different ways to change the emphasis and illustrating the points with new examples. If you add in a prologue and appendices and trim the target page count a bit, you reduce your writing burden from 87,500 words to around 70,000.
Once the first draft is in place, the developmental editor flags obvious repetitions and incongruent material so the “with” author can adjust the manuscript as needed. As an experienced author, I can see where Karen Kelly helped the Red Thread Thinking manuscript along. I think she did a great job, both due to her professional skills and because Debra Kaye’s basic ideas are sound.
My advice to anyone who wants to create intellectual property to support your work and sell in the back of the room? Don’t be afraid to write a series of short pieces at first. A 10-page white paper or 30-minute podcast is far better than a book that’s 90% fluff. Build your material gradually and, when you have enough of it for the type of book you want, bring it together into a coherent whole.
“Yes…and” isn’t always your friend in business
Improvisers are trained to accept other players’ offers so scenes can move forward. In fact, it’s nearly impossible for an improvised performance to succeed unless the actors say “yes” to others’ contributions “and” extend or heighten those offers.
In negotiations of all types, and especially in a business context, part of the battle for victory hinges on establishing the reality you’re discussing. As a writer, I have to place a value on my services and the benefits they bring to my clients. A potential client who’s interested in getting the best service at the lowest possible price could point out that they are a new company acquiring lots of content, so they aren’t in a position to pay me what I think I deserve. The “Yes…and” approach pushes me to accept what they’ve said as truth and take the contract as offered. The problem is that I’m not in a scene meant to entertain an audience — I’m in a negotiation over whether I get paid what I deserve. Many factors influence the decision, such as whether I’m bored or need the work, but in the end I have to live with the consequences of my choice. Accepting less than I’m worth drives down my value and, worse, my self-perceived value. Unless the situation is dire, you shouldn’t bend to the version of reality they’ve put forth.
You should also watch out for internal battles at a company, even one where you’ve worked for a while and established a trusting relationship with your colleagues. Your co-workers might misunderstand a situation or, if you’re competing for a promotion or assignment, want to influence how a situation is perceived. “Yes…and” can be a weakness others exploit. It’s tough to maintain a proper balance between acceptance and skepticism, but it’s worth the effort to try.
Improspectives 
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