The internet has changed our lives in many ways, sometimes for the better, and sometimes for the worse. What the events of last year, such as Brexit and the US Presidential campaign, have exposed is the way that the structural flaws of the human brain can be taken advantage of using the internet.
What is encouraging is that these problems have gotten wider play and people are starting to take measures to combat them. Luckily, we can already build upon a wide range of research and solutions in this area, many of them developed because of similar large-scale failures of human rationality.
One of the most basic principles of traditional economics is the assumption that humans are rational actors always striving to maximize their own benefits.
I remember sitting in Econ 101 class and sort of scratching my head at this. In my experience, most humans were very far from rational actors. Actually, I have seen people literally shoot themselves in the foot more times than I can count.
Then the economic crisis of 2008 arrived and all these theories came crashing down. Most economists realized that humans are not so rational after all, and behavioral economics suddenly exploded onto the scene.
However, behavioral economics is nothing new and had been around for a while, but it was not really the prominent paradigm for most economists.
Already in the 1950s, Herbert A. Simon, an economist and psychologist (a polymath really), proposed the idea of “bounded rationality”. In this model, humans are only partially rational, and this rationality is limited by difficulties in formulating complex problems and in processing different types of information.
Many of the basic concepts in behavioral economics are based on the work of two Israeli psychologists, Amos Tversky and Daniel Kahneman. They noticed that there are specific patterns inherent in human decision-making.
The two big terms that they came up with are “heuristics” and “cognitive biases“. Heuristics are mental shortcuts that humans take in order to solve problems and then take action based on these solutions.
Most of the time, these mental shortcuts come up with a good solution. They are fast, efficient and effective. This then allows you to go about your daily life and navigate the world.
However, things are not perfect and sometimes these mental shortcuts come up with the wrong solution. This is called a cognitive bias. The process was fast and efficient, but obviously not effective.
Why do you behave in this way? All of this can be explained using evolutionary psychology.
Humans, just like any organism, are the product of millions of years of evolution. Their bodies and minds adapted due to pressures coming from their environment.
Not in a direct way, but indirectly. Due to random mutations, certain ways of behavior would arise. If these behaviors allowed the organism in question to survive long enough to reproduce, then they would propagate to their descendants.
This is the basis of evolutionary theory. An individual doesn’t have to be perfect. It just needs to be good enough to survive.
There are two main goals hardwired deep down into your brain: survival and reproduction. These two things are what drives your existence.
Imagine the everyday environment of your ancient ancestors, living somewhere on the vast savannas.
There are many dangers present. At any time of the day or night, a saber-toothed tiger could jump out of the bush and want to eat you, or a little snake could bite you and poison you.
In order to survive in such an environment, you need to be able to take in vast amounts of information through your senses, determine what is significant and what isn’t, and then make quick decisions based on this.
Is that noise you are hearing just wind beating against the sand or something more sinister? Is that shadow just a figment of your imagination or a lion heading your way?
These were the main things that your brain developed to analyze. However there are some constraints to this entire process.
The two basic principles behind the way your brain works are speed and efficiency:
1) You need to make quick decisions based on outside stimuli. So speed is important.
2) You should not expend too many resources, and so you need to do things in the most efficient manner possible. You never know when and from where your next dinner will come from, so saving energy is a priority.
In order to make decisions quickly and efficiently, your brain developed mental shortcuts. That’s where heuristics come from.
However, if your brain developed to make decisions to ensure your survival, why does it fall for cognitive biases? The answer here is costs.
By saying costs, I mean the potential pay-out of making the right and wrong decision.
Let’s go back to the prehistoric savanna in order to illustrate. You are walking on your way home from a successful hunt, your kill strapped to your back. You are walking alone, since you got held up and your companions went on ahead of you.
Then suddenly you hear a noise coming from behind a rock nearby. Quickly, your brain goes into overdrive. What could it be?
If it judges it to be nothing of concern and you pay no attention to the noise, but suddenly a lion jumps on you, you are dead meat. You have become a source of protein and essential fats (and maybe some carbohydrates too) for an entire lion family.
Hopefully, you die quick and don’t get to experience the joys of getting dismembered by a pride of lions, the alpha male and his harem of females, together with their baby cubs.
However, if you judge it to be danger and take out your spear while running away from the place, but then realize that it was nothing, there is no mortal cost to you. Sure, you got a bit sweaty, but you are still alive to hunt another day.
You see what I am getting at? It is much more costly if you judge something to be of no importance, when it is in fact significant, than it is if you judge something significant and there is nothing there.
In the first instance, you die, while in the second one, you continue on living and potentially pass on your genes. Your brain is wired to err on the side of caution.
This is where cognitive biases come from. Your brain evaluates thousands of stimuli from the outside every second, and sometimes it makes mistakes.
However that mistake doesn’t matter if it doesn’t kill you. What matters is that that specific way of solving problems and making decisions keeps you alive the rest of the time.
The brain looks at these different pieces of information and tries to make patterns out of them. If a wrong pattern emerges, it is called a cognitive bias.
One thing that I have noticed is that since now the study of cognitive biases is very popular, psychologists keep on coming out with newer and newer types of these almost every day. Sometimes many of these are very similar.
It’s hard to keep track of all of them. So I decided to sit my ass down and simplify things for myself. At the end, I came out with a small framework to help me make sense of cognitive biases.
I have based this framework on some of the things discussed above. Survival and reproduction are the two main goals that drive human existence.
Heuristics or mental shortcuts developed in order to help humans survive long enough to reproduce. These mental shortcuts need to be fast and efficient.
The inputs they work with are different types of information. This information comes from outside stimuli gathered by your senses or from storage (memories) in your brain.
The problem is that you need to construct all this information into some sort of meaningful patterns. Only once you have this meaning, can you make decisions.
I have broken down all these different cognitive biases into two basic categories arising from two fundamental ideas:
1) The world is centered around me.
2) I need to make the correct decision based on the information available.
The first fundamental idea is that you think that the world is centered around you. No matter how altruistic you are, there is still at least a bit of solipsism inside of you.
This idea shapes your inner thought patterns and your relationships with the people around you.
The second fundamental idea comes from the fact that you need information as inputs in order to make a decision.
Sometimes there is a lot of information around you and you need to determine which of it is significant. Sometimes, there is not enough of it and you need to determine what to do in the face of uncertainty.
Oftentimes, the relevant information may not be present at that moment in your environment, and you might need to pull it out of your memory.
Almost all of the main cognitive biases work within these two categories.
However, you also need to keep in mind that you cannot put all the biases into neat little boxes (otherwise you would be committing a cognitive bias ☺ ). Some biases belong in several categories and combine elements of each.
Here is the framework broken down and explained: