Sunday, January 22, 2012

Swayed by Irrationality

Imagine that you have been selected to participate in an experiment where you are paired with a stranger. The experiment requires a total of $10 to be split in any proportion among yourselves. But you are also told that you would be placed in separate rooms and cannot see or communicate with each other. Once the experiment begins, one of you would be randomly designated as the giver and the other the receiver. Once the giver determines the split, the offer would be taken to the receiver. If the receiver accepts the offer, both of you would collect your respective share. However, if the receiver rejects the offer, both of you will walk out empty-handed. This experiment will be conducted just once; there are no second chances.

Now imagine that you are the receiver. Would you accept the offer if offered less than $5 (50:50 split)? Next, you are told that your partner is not a human but a computer. And imagine that you are the receiver again. Now, would you reject the offer if the computer gave you just $1 (10:90 split)?

I imagined myself as a participant and concluded that I would offer 50:50 as a giver. I would also walk out if I get anything less than 50% from a human partner. But I will take anything when a computer determines my cut. I suspect – but cannot conclusively prove - that most of us would follow the same approach.

But.... but.... most of us are rational, correct? From that perspective, it makes no sense to reject any offer in both cases, is it not? After all, any money is better than no money, and this money is free to begin with. So why do we want to be offered 50:50 where essentially the receiver and the giver are chosen at random? (Note: It turns out that most participants of this real-life experiment did offer 50:50, and in many cases when it was not, the receivers rejected the offer.) 

Well... it turns out that the reason we behave this way is that we are more bothered about the process than the outcome. When we say that 'it is about principles and not money', what we actually mean is that our sense of fairness sways our decision more than anything else. This, and several other situations, stories and scenarios, frame the immensely eye-opening Sway: The Irresistible Pull of Irrational Behaviour. In under 200 pages, the authors show us that we humans are not as rational as we make ourselves to be, and that we are swayed to irrationality much more than we care to acknowledge.

It turns out that we sway due to two factors, viz. our own limitations as individuals and our confrontation to situations in social settings. Limitations include aversion to loss (think how we hate cutting losses in a stock market), commitment to a past decision regardless of how badly it is turning out (think Vietnam/Iraq), and our preference to attribute value based on first impressions (think love). Social settings sway us while in groups (think situations when we choose not to speak up even when we disagree with everyone else) or when we believe we are dealt with anything unfair (think.... well.... the previous paragraph).

The range of examples is breathtaking. You read about the (seemingly senseless) actions of a KLM pilot who took off without clearance in 1977 only to lead his passengers to a fiery death. You understand why you opt for 'flat rate' phone plans regardless of their true relevance in life. You learn much from how eggs and orange juice are purchased when prices rise or fall. You travel to Java to get a perspective on how archaeological discoveries are irrationally debunked by world scientists. And just in case you think that logic and rationality exists in 'near death' situations, you are shown samples of irrationality in the Israeli Army & in a Swiss town dealing with nuclear waste.

My favorite story? A world famous musician in jeans and baseball cap plays his  $3.5M violin in a Washington subway. Over a 1000 people pass him by and he is largely ignored. Normally accustomed to playing in front of sold out crowds and thunderous applause, the 40-minute subway performance of complex music does not even merit a few glances. Why? Because the audience attributed value based on his appearance. Now imagine the crowd around him if he was formally dressed and there were TV cameras around.....

If Blink encouraged us to trust our 'gut', Sway reiterates the power of irrationality in our subconscious. But where Blink lacked in explaining how negative stereotyping can be avoided, Sway stands out by explaining our bias and how their influence can be reduced in thought and action.

4 stars!!!

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