Decision Science News

ON COMMITMENT DEVICE BUSINESSES AND SOFT CONTRACTS

This week, our former home, the Center for the Decision Sciences at Columbia University, has turned us on to this article about a fitness plan that charges you more if you work out less. Yes, it’s a business putting applied behavioral economics to work, not unlike Stickk.com or Beeminder.com (formerly known as Kibotzer.com and currently known as bmndr.com by those who like to abbrvt).

The plan works in conjunction with gyms. We have often heard people say, with great assurance, that gyms bet on people not making good use of their memberships, that they are businesses based on a human inability to commit. Sure, if you take “good use” to mean going every day, it’s clear that gyms could not handle the crowds that would result. However, we at DSN often doubt people who say things with great assurance without evidence. After all, people don’t make good use of their gym memberships may not renew their memberships, and that is bad for business.

SOFT CONTRACTS: AN IDEA THAT WILL NOT WORK IN THEORY BUT WILL WORK NONETHELESS
DSN once committed to patronize the gym 150 times a year. We did pretty well for the first half of the year and then were met by a long spell of illness and travel. After that, hitting the 150 number required more frequent workouts then we cared to commit to, so we gave up. It’s a problem when commitment contracts don’t make room for periods in which you cannot, should not, or do not want to honor your contract. Yes, we grouped “do not want” with the others. For instance, suppose we had been offered an all-expense-paid, two-month trip around the world that would leave no possibility for going to the gym. Taking the once-in-a-lifetime trip would be more important to us than going to the gym 150 times per year, so we would choose to lose the gym bet to take the trip. However, that’s not ideal. What’s ideal is to honor the gym bet when we are home and healthy and to suspend it otherwise. Since we can define these preferences a priori, it should be possible to define contracts that work within those rules. However, since it is impossible to think, a priori, of every possible thing that might make one want to suspend the bet, it seems reasonable to simply trust people to be honest about when they should be honoring the contract and when not. We realize this violates all the sacred principles of commitment contracts, experimental economics, law & order, and so on, but so what. History is filled with failed token economies and successful systems of soft guidelines.

OTHER DSN POSTS ON COMMITMENT DEVICES
Stop overeating with a turn of the wrist

Contracts to fight procrastination

APPLICATIONS NOW ACCEPTED FOR JUNE 21-28, 2011 SUMMER SCHOOL IN BERLIN

Summer Institute on Bounded Rationality
Foundations of an Interdisciplinary Decision Theory
21 – 28 June, 2011

Directed by Gerd Gigerenzer
Center for Adaptive Behavior and Cognition
Max Planck Institute for Human Development, Berlin, Germany

It is our pleasure to announce the Summer Institute on Bounded Rationality 2011 – Foundations of an Interdisciplinary Decision Theory, which will take place from June 21st to 28th, 2011 at the Max Planck Institute for Human Development in Berlin. The objective of the Summer Institute is to provide a platform for genuinely interdisciplinary research, bringing together young scholars from psychology, economics, biology, and philosophy. Its focus will be on the concept of “social rationality” – how rational behavior can emerge from simple heuristics that interact with a social environment. The goal is a deeper understanding of the way Homo sapiens forms decisions in an uncertain social world. Sharing knowledge across disciplines may well challenge the reigning assumptions in each.

Talented graduate students and postdoctoral fellows from around the world are invited to apply by March 18th, 2011. We will provide all participants with accommodation and stipends to cover part of their travel expenses. Details on the Summer Institute and the application process are available at http://www.mpib-berlin.mpg.de/summerinstitute

Please pass on this information to potential candidates from your own department or institute.

GPS AND CHICKEN WINGS VS FLYING FIRST CLASS

This week, the Decision Science News editor talks about “premium experiences” and counter-evidence to the maxim that things don’t bring happiness.

I own a GPS but not a car.

When I travel, I look forward to getting into a rental, plugging in the GPS and finding the route to the hotel, the conference, or the local place with the best chicken wings. I get a strange pleasure of going to an arbitrary place like, say, Jacksonville, looking on Yelp to find the best place to find an arbitrary food, and then having the GPS guide me there. This is a true pleasure that technology brings me. It’s much better than driving while looking at scraps of paper or a crummy Avis map.

A noted behavioral economist and I were driving to a party once. Naturally, the conversation turned to the GPS. He shared my affection for them and pointed out another use, which is that you can give them to visiting relatives, who are then liberated and can drive themselves around and find their way back home again. He said that his delight in the GPS is unusual, however, as he finds disappointment in most things: especially espressos.

I thought about this a lot.

There is a common bit of advice which is to pay for experiences, not for things. I had always taken that for granted as true. Don’t be materialistic. Don’t pollute the world with needless junk. All that. But, I’m starting to realize that dollar for dollar, it often isn’t true, especially when dealing with premium experiences that are supposed to be great.

Take flying first class. A few years ago, when I first did it, it was great. A warm ramekin of nuts and a vodka tonic, sure, why not? But then, despite a bill that is sometimes $1000 higher, I’ve learned that a first class ticket: won’t get you into the lounge before your flight, won’t assure you your choice of meal (they run out), won’t get you your choice of drink, etc. On the first class flight I took last, the “meal” was a tiny bag of pretzels and a mint. (Guy behind me: “is there any other food?”. Stewardess: “no”).

When I think the supposedly premium “experiences” I’ve had, first class tickets, meals in fancy restaurants, etc., I have trouble remembering them, and those I do remember make me less happy than the $300 gadget that can show me the way to chicken wings nationwide. And when I summon the best experiences I’ve had, most were free.

There have been some comments about getting more specific about what is meant as an experience, and isn’t using the GPS an experience. So a clarification is in order:

With “experiences” I’m thinking of things billed as experiences in themselves: a fancy flight, a fancy meal, a theme park visit, a boat ride, a massage, an indulgence of one sort or the other. Granted, there are some great experiences (e.g. renting a canoe and spending the day on the Housatonic), but I’ve found in the past I’m quite ready to spend on experiences and deprive myself of material things when some material things (e.g. a GPS) are just an astonishing value as they lead to many, many feelings of satisfaction for the price of one supposedly great indulgence.

THE SUPERBOWL INDICATOR

Discussing the Decision Science News correlation, causation post during one of our daily and always entertaining Yahoo! Research lunches, someone said “this battle can’t be won because people just want to believe certain things are causal”. In line with that, Jason Zweig sends along this very funny piece about a spurious correlation, which, even though abandoned by its creators, refuses to die:

http://blogs.wsj.com/marketbeat/2011/01/28/super-bowl-indicator-the-secret-history/

Another nice side effect of last week’s post was this XKCD sent along by Winter.

Photo credit http://en.wikipedia.org/wiki/File:AmFBfield.svg

HOW TO STOP THE SELLING OF CORRELATION AS CAUSATION?

Decision Science News does not read news often. (We took Herbert Simon’s advice that checking the news every week or so is enough and are much happier since). However, each time we do we see headlines of the following sort:

Want to live longer? Get a grip! (On the correlation between longevity and hand grip strength).

If you want to live longer, then walk faster (On the correlation between longevity and walking speed).

If you’re reading Decision Science News, we don’t have to tell you that there’s not a scrap of evidence in the research cited in these articles that walking faster or giving firmer handshakes makes you live longer. See a target article to see it’s all correlational, not causal.

This is serious. First, it’s saying something that isn’t true. The news shouldn’t do that. They seem to get away with it by virtue of the fact that most people can’t conduct research themselves. (If they lied about testable relationships, e.g., “Want to avoid a ticket? Park on the sidewalk,” people would stop believing them rather quickly). Second, the effects are pervasive. We’ve seen PhDs in every field get suckered by a bogus headline.

(Speaking of headlines, DSN finds it hard to believe that anyone doing science journalism for more than a week wouldn’t fully grasp the correlation/causation distinction, if they didn’t have it already. Thus, we suspect there might be a strange relationship between people who write the stories and the people who write the headlines. We will check with our sister.)

It is handy that there is a Wikipedia article entitled Correlation does not imply causation, but how can people stand a chance against media machines that propagate new stories of this type every day?

A simple step is to prevent these stories from getting credibility with search engines by putting rel = “nofollow” in the URL when we ever have to link to such articles (as we have done above). But admittedly, that’s pretty weak.

Can we think of something better? This is 2011. We’re not at the mercy of a few media giants anymore. Online, people can exert a ot of collective power. What can be done about this? Maybe a browser plugin (like xmarks) that can overlay ratings on top of hyperlinks? A collective that keeps a kind of blacklist, perhaps punishing a publisher with less traffic each time they post such a headline?

What have you got?

BEHAVIORAL ECONOMICS AS A COMPLEMENT, NOT A SUBSTITUTE

Sisyphus finds some nudges harder than others

George Loewenstein and Peter Ubel published this Op Ed in the New York Times entitled Economics Behaving Badly. It is not every day that prominent behavioral economists emphasize the limits of what they do, so we thought they deserved special mention here, (even if we are terribly late getting to this).

The article mentions some of the less-whelming behavioral economic interventions of late, and stresses that babies and bathwater need to be identified when rethinking existing systems.

Here is a representative quote:

Behavioral economics should complement, not substitute for, more substantive economic interventions. If traditional economics suggests that we should have a larger price difference between sugar-free and sugared drinks, behavioral economics could suggest whether consumers would respond better to a subsidy on unsweetened drinks or a tax on sugary drinks.

But that’s the most it can do. For all of its insights, behavioral economics alone is not a viable alternative to the kinds of far-reaching policies we need to tackle our nation’s challenges.

They mention that a program designed to reduce energy consumption by revealing neighbor’s consumption had modest effects of 1 to 2.5 percent. Since then, a working paper A working paper entitled Energy Conservation ‘Nudges” and Environmentalist Ideology: Evidence from a Randomized Residential Electricity Field Experiment by Dora L. Costa by Matthew E. Kahn, based on the same on the same study suggests that the effect can backfire as a function of the audience. Here’s the abstract:

“Nudges” are being widely promoted to encourage energy conservation. We show that while the electricity conservation “nudge” of providing feedback to households on own and peers’ home electricity usage works with liberals, it can backfire with some conservatives. Our regression estimates predict that a registered liberal who pays for electricity from renewable sources, who donates to environmental groups, and who lives in a liberal neighborhood reduces consumption by 3.1 percent in response to this nudge. A registered conservative who does not pay for electricity from renewable sources, who does not donate to environmental groups, and who lives in the bottom quartile liberal neighborhood increases consumption by 0.7 percent.

GELMAN’S FIVE BOOK RECOMMENDATIONS

There’s a nice article in The Browser in which Statistician and Political Scientist Extraordinaire Andrew Gelman recommends five books. It is definitely worth a read. We learned something about baseball from it and have decided to buy a book on child rearing based on its recommendations. [We already knew the stuff about decision making, bien sur]

Since Andrew is a friend of the blog and  a notorious chart curmudgeon, we thought that for this post we would create a useful infotainmentgraphic, above, with which no reasonable person should find fault. We’ve subbed the Bill James Historical Baseball Almanac for the Annual editions from 1982-1986 because it is supposed to be Five Books, not Nine Books, but Five.

Without further ado, Gelman’s five. Again, don’t miss the article for the explanations.

The New Bill James Historical Baseball Abstract

Judgment under Uncertainty: Heuristics and Biases

How Animals Work

The Honest Rainmaker

How to Talk So Kids Will Listen and Listen So Kids Will Talk

ADDENDUM: With Andrew’s expert advice, we were able to improve the graphic a little:

ADDENDUM 2: I found some even better charts! Click to see full size.

SOCIETY FOR JUDGMENT AND DECISION MAKING NEWSLETTER

Society for Judgment and Decision Making Newsletter Editor Dan Goldstein reports that the final SJDM newsletter of 2010 is ready for download.

http://www.sjdm.org/files/newsletters/

Enjoy!

ROBYN DAWES, A FOUNDER OF THE JUDGMENT AND DECISION-MAKING FIELD

December saw the passing of Robyn Dawes, without question a scholar who helped define the research area of Judgment and Decision Making. The author of the pre-eminent course text “Rational Choice in an Uncertain World”, Dawes was no doubt responsible for getting and keeping many students interested in the field. Dawes was an excellent writer. In addition to authoring what we think is the best-titled paper in the history of JDM “The Robust Beauty of Improper Linear Models in Decision Making“, his books were some of the few we read without skipping a word from start to finish. Dawes is unique: a mathematical clinical psychologist (some say the only one), a past-president of the JDM Society, a fellow of American Academy of Arts and Sciences, an academic with no fear of controversy, and much more.

Here we reprint an obituary from the CMU website entitled Robyn Dawes Transformed Psychological Sciences Helped Found the Behavioral Decision Research Field. Note that there is still time to make plans to attend a memorial service in January.

PITTSBURGH—Robyn Dawes, the Charles J. Queenan Jr. University Professor of Psychology at Carnegie Mellon University who helped establish the field of behavioral decision research and made a significant impact in several areas of psychological sciences, died Dec. 14 at age 74.

“Robyn was an academic pioneer whose scholarship and leadership brought distinction to the university. His high standards and commitment to interdisciplinary teaching and research were deeply emblematic of Carnegie Mellon,” said CMU President Jared L. Cohon.

Dawes was one of the most distinguished researchers in behavioral science and significantly advanced the understanding of how people think, learn, judge and decide. Dawes was known for research in several areas, including characterizing the limits to judgment for experts and lay people, as well as the conditions that encourage people to cooperate with one another. He also became well known as a critic of clinical psychology practices not supported by empirical research.

“Robyn was a giant in the field of psychology, constantly pushing the boundaries and taking a fresh, innovative approach to real problems,” said John Lehoczky, dean of the College of Humanities and Social Sciences. “He helped create the area of behavioral decision research — an intellectual field that merged psychology and economic theory and that has since given us behavioral economics. His contributions to his research, Carnegie Mellon and his students are impossible to measure. His legacy will live on through the Department of Social and Decision Sciences, which he built.”

Dawes received his bachelor’s degree in philosophy from Harvard University in 1958. After taking a class in experimental psychodynamics, Dawes became interested in psychological problems from an empirical perspective. He attended the University of Michigan for his post-graduate work, earning a master’s degree in clinical psychology in 1960 and a doctorate in mathematical psychology in 1963. His first faculty appointment was at the University of Oregon, where he taught psychology and served as department head.

In 1985, Dawes joined the Carnegie Mellon faculty as a professor of psychology and head of the Department of Social Sciences. He embarked on establishing a core in decision-making, a discipline that his own research had helped to define.

“Robyn actually put the ‘decision’ into Carnegie Mellon’s Social and Decision Sciences Department, and his leadership and research set the stage for us becoming a world-class presence in this area,” said John H. Miller, head of the Department of Social and Decision Sciences. “His research gracefully transcended the social sciences, having major impacts on the fields of economics, political science and psychology.”

Dawes work in debunking myths and the views of self-proclaimed experts was based in the concern for humanity that motivated his research.  As a member of the National Research Council’s Committee on AIDS Research in the 1990s, Dawes fought the unfounded misconception that needle exchange programs — which can reduce the spread of HIV among intravenous drug users — promote drug abuse. In his book “House of Cards: Psychology and Psychotherapy Built on Myth,” Dawes called out mental health professionals for ignoring empirical research in favor of techniques that do not hold up to scientific inquiry.

Baruch Fischhoff, the Howard Heinz University Professor of Social and Decision Sciences and Engineering and Public Policy, was influenced by Dawes’ work when he was a graduate student in the early 1970s. Fischhoff later became Dawes’ colleague at Decision Research, in Eugene, Ore., and then at Carnegie Mellon. “Robyn was a great man, scientist and intellectual, who devoted his career to creating a psychology that makes the world a better place,” he said. “He was fearless in seeking the truth and in fighting those who would subvert it. He was a hero to those with the good fortune to know him.”

Dawes authored several books including “Mathematical Psychology: An Elementary Introduction,” one of the first text books on the topic, “The Fundamentals of Attitude Measurement” and “Everyday Irrationality: How Pseudoscientists, Lunatics and the Rest of Us Fail to Think Rationally.”

During the course of his career, Dawes earned many honors including the American Psychological Association’s William James Award in 1990 for his book “Rational Choice in an Uncertain World,” an induction into the American Academy of Arts and Sciences in 2002 and an elected fellowship to the American Statistical Association in 2006. In 2005, the American Psychological Society honored his lifetime of scientific contributions with a Festschrift, a collection of essays about his work written by colleagues from around the country.

Dawes is survived by his wife Mary Schafer; his two daughters, Jennifer Dawes of Pittsburgh, Pa., and Molly Meyers of Eugene, Ore.; two grandchildren, Kaylynn Meyers and Avery Meyers; and two cousins, Marcia Meadows of Mesa, Ariz., and Jane Hill of Eureka, Calif.

A memorial service is planned for Jan. 29, 2011, at the First Unitarian Church in Pittsburgh. Contributions may be made in Dawes’ memory to Transitional Services, Inc., 806 West St., Homestead, PA 15120.

For more information on the acclaimed career of Robyn Dawes, watch an interview with him that was made in conjunction with his Festschrift at http://video.google.com/videoplay?docid=-1321077408096928789#.

Photo credit: http://bit.ly/gxhloA

RESULTS OF THE GREAT AREA PLOT QUIZ

If you are the type of reader who remembers things from last week, you may remember the great area plot quiz we had running.

This week, we are excited to announce that the results are in. The plot above shows answers to the four questions. The correct answers are indicated with the green lines. Remember, in each question, the big circle was area 1000 and readers had to guess the areas of the second and third biggest circles.

As the above plot shows, when the circles are 8% to 20% of the size of the biggest (questions 1 and 3), people exhibit a great deal of variation in their area estimates, but the responses benefit from some “wisdom of crowds” magic and approximate the truth. When the circles are 5% or 1% of the biggest, people tend to underestimate the area. It is also interesting to note that 1) the biggest variation in response is in the question with the biggest circle; this was a somehing surprise, since one would think it would be easier to visualize putting a biggish circle inside a little one, however floor effects can account for some of it 2) While the circles in questions 1 and 4 weren’t that different in area, people treated them somewhat differently. It seems as if in question 4, the fact the circle was third largest caused people to underestimate its size. Perhaps if it were second largest, it may have been spot on. The mean absolute deviations from the correct answer in Questions 1 – 4 were 38.6, 9.4,  73.6, and 31.2 respectively.

The following plot, which shows the difference between the responses and the correct answers, is also informative (and frankly, we couldn’t decide which one to lead with). It makes the underestimation apparent.

Hadley of ggplot2-authoring fame asked if we used “scale_area” to make our plots. Yes, we did.

p <- ggplot(plot.data, aes(num.contacts.sales.part1,response))
p <- p + geom_point(aes(size=count,alpha=.8)) + geom_line(size=.25)
p <- p + scale_area(to=get.range(plot.data$count))

where
get.range <- function(counts) {
dist <- counts/sum(counts)
my.range <- c(sqrt(min(dist)*100),sqrt(max(dist)*100))
my.range <- round(my.range,1)
}

Naturally, at this point, many R-hounds will want to play with the data. There are many things to try, such as computing the accuracy of the third circles on the assumption that the areas of the second circles are all correct. Far be it from us to stand in the way of such tinkering. Just paste the following into an R session to reproduce the data frame “df” with the responses.

df=structure(list(variable=structure(c(1L,1L,1L,1L,1L,1L,1L,1L,1L,1L,
1L,1L,1L,1L,1L,1L,1L,1L,1L,1L,1L,1L,1L,1L,1L,1L,1L,1L,1L,1L,1L,1L,1L,
1L,1L,1L,1L,1L,1L,1L,1L,1L,1L,1L,1L,1L,1L,1L,1L,1L,1L,1L,1L,1L,1L,1L,
1L,1L,1L,1L,1L,1L,1L,1L,2L,2L,2L,2L,2L,2L,2L,2L,2L,2L,2L,2L,2L,2L,2L,
2L,2L,2L,2L,2L,2L,2L,2L,2L,2L,2L,2L,2L,2L,2L,2L,2L,2L,2L,2L,2L,2L,2L,
2L,2L,2L,2L,2L,2L,2L,2L,2L,2L,2L,2L,2L,2L,2L,2L,2L,2L,2L,2L,2L,2L,2L,
2L,2L,2L,3L,3L,3L,3L,3L,3L,3L,3L,3L,3L,3L,3L,3L,3L,3L,3L,3L,3L,3L,3L,
3L,3L,3L,3L,3L,3L,3L,3L,3L,3L,3L,3L,3L,3L,3L,3L,3L,3L,3L,3L,3L,3L,3L,
3L,3L,3L,3L,3L,3L,3L,3L,3L,3L,3L,3L,3L,3L,3L,3L,3L,3L,3L,3L,3L,4L,4L,
4L,4L,4L,4L,4L,4L,4L,4L,4L,4L,4L,4L,4L,4L,4L,4L,4L,4L,4L,4L,4L,4L,4L,
4L,4L,4L,4L,4L,4L,4L,4L,4L,4L,4L,4L,4L,4L,4L,4L,4L,4L,4L,4L,4L,4L,4L,
4L,4L,4L,4L,4L,4L,4L,4L,4L,4L,4L,4L,4L,4L,4L,4L),.Label=c("q1","q2",
"q3","q4"),class="factor"),value=c(50,60,70,50,10,100,40,50,50,50,100,
100,100,50,50,111,100,150,10,250,70,65,100,200,100,100,100,40,100,20,
50,200,100,100,50,100,125,100,100,100,50,100,100,10,100,200,100,100,
63,100,100,100,80,10,50,80,50,125,50,300,100,50,150,50,5,5,7,5,2,10,1,
25,8,5,10,10,20,5,1,7,10,50,1,100,8,5,10,50,10,10,10,8,10,2,5,50,15,10,
2,5,16,10,25,10,5,10,10,1,10,25,10,25,6,10,10,10,12,1,10,10,5,30,5,100,
10,5,20,3,100,200,200,100,200,250,200,100,90,50,150,300,200,100,100,
250,250,300,100,400,120,120,250,300,250,200,250,200,200,40,100,400,130,
200,100,200,250,300,200,200,100,150,200,40,250,450,250,200,169,100,1,
250,200,50,200,160,200,250,100,400,300,100,300,100,10,50,40,25,20,125,
40,25,15,5,20,150,100,25,20,28,50,100,10,200,15,25,25,100,60,20,125,40,
40,4,10,100,25,50,10,20,63,30,50,50,10,50,50,10,60,200,50,50,42,10,0.1,
62,40,5,50,25,50,125,20,100,30,50,60,20)),.Names=c("variable","value"),
class="data.frame",row.names=c(NA,-256L))

If you want the correct answers (what we in JDM call the “normative” answers), just paste this, too.

df$norm=c(rep(78.4 ,nrow(df)/4),
rep( 11.2,nrow(df)/4),
rep(193.1,nrow(df)/4),
rep(50.9,nrow(df)/4))