A new book explores irrational decision making.
Ever since the time of the ancient Greeks, we've assumed that humans are rational creatures. When we make a decision, we are supposed to consciously analyze the alternatives and carefully weigh the pros and cons. This simple idea underlies the philosophies of Plato and Descartes; it forms the foundation of modern economics; it drove decades of research in cognitive science. Over time, rationality came to define us. It was, simply put, what made us human. There's only one problem with this assumption: it's wrong. It's not how the brain works. For the first time in human history, we can look inside our brain and see how we think. It turns out that we weren't engineered to be rational or logical or even particularly deliberate. Instead, our mind holds a messy network of different areas, many of which are involved with the production of emotion. Whenever we make a decision, the brain is awash in feeling, driven by its inexplicable passions. Even when we try to be reasonable and restrained, these emotional impulses secretly influence our judgment.
This is not exactly news for anyone who dates, plays Modern Art, or works.
8 comments:
I maintain that it was not irrational to buy Phil's Lite Metal. It was an even exchange of $50,000 for something that was worth $50,000. Irrational would have been $50,000 for something worth $0 - $49,999. An even exchange is not irrational.
Yes it was irrational. In the game you are competing against one another, not merely trying to maximize your own amount of money. While you "broke even," you enriched Phil by $50,000.
Say you both started with 100,000. By making your play, the end result was:
Kat - 100,000
Phil - 150,000
if you did not buy the lite metal, the end result would have been:
Kat - 100,000
Phil - 100,000
Bank - phil's 50,000
But don't worry...there were many irrational plays. I put up a Yoko right afterwards for 50,000 and got stuck with it b/c i thought the market had gotten a bit crazy. Had I just kept my head and done the rational thing, I would have been better off.
Ah, I see what you're saying. I was thinking about it only from the perspective of my own bank account. Well, I blame my fuzzy view of the big picture on all the wine and beer. Which is, of course, not to say that I regret the wine and beer.
It's easy to play Monday morning quarterback based on the known outcome of the game...but at that point of the purchase the outcome was far from certain and several variables were unknown such as how long that season would last, how many more lite metals would go on auction block during that season, etc.
Til the next game...
Well, in case you guys both forgot, Vondy ended the game on her next turn by playing a double auction Lite Metal compounding the irrationality of the choice. She firstly overpaid and to ensure she didn't lose more money, ended the game prematurely.
I would argue there were several choices available to Kat, all of which would have improved her relative standing at that point in the game. A) she could of not purchase the lite metal and stuck phil with it B) Once she purchased the lite metal, she could of auctioned a single lite metal and NOT ended the game, thereby making some of her money back before Phil ended the game on the next play to preserve his own lite metal.
Either way, Vondy would have improved her own position.
Phil - you are essentially arguing one cannot make an irrational play until one knows the outcome. Obviously, this is not true.
What perhaps makes the game genius is that certain irrational choices benefit the player. I would actually argue Phil's fixed price offer of $50 K was an irrational price since it's maximum value on the sale block was $50 K. If we were all rational players, you would have gotten stuck with it and it would have been a wasted auction at the very least, and a money loser at the worst. But by Vondy making a larger irrational choice, Phil actually benefited. Furthermore, the dual irrationality caused me to put up a Yoko for $50 irrationally on the next play and then finally, you guys all made the rational play and let me purchase it myself and I ended up losing money.
And we wonder why there was a housing bubble.
Phil - this is not someone's wall on facebook. Sorry, I must delete this comment.
To be clear: my decision to sell two Lite Metals and end the game was not a bad decision because it was irrational; it was a bad decision because I had miscalculated how much money Phil had saved up. Miscalculation is not the same as irrational, it's just a mistake. I thought I was winning with that play but I was wrong because Phil somehow made $319,000 or however much he had in addition to the $50,000 I paid him for his Lite Metal.
What did Phil comment on that Greg had to erase? I'm intrigued. Phil, whatever it was, you can write it on my Facebook wall.
fair enough. a mistake it is.
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