Maggie's Farm

From the Wiki entry:

"Anchoring or focalism is a cognitive bias that describes the common human tendency to rely too heavily, or "anchor," on one trait or piece of information when making decisions."

The notion of Anchoring Bias comes from Cognitive Psychology, not from Logic.

I suppose it could be a fancy way of saying that sometimes we cannot see the forest for a single tree, and are thus "prevented" from considering all of the relevant facts or options.

This sort of cognitive bias typically operates, as do most biases, unconsciously or reflexively, as a gravitational pull towards some decision or reaction.

A true example (but not an unconscious one, from the Mrs., on considering what new car to buy): "It just has to be the right shade of maroon."

Another example, reported to me by a pediatrician friend: "I ordered a brain MRI ($800) for a 10 year-old kid with tension headaches.  Totally unnecessary, and I realized afterwards that I did it because I had read a journal article over the weekend about an undiagnosed brain tumor in a 10 year-old."

Thus, like most fallacies and biases, it's part of the brain's effort to be efficient or persuasive in its heuristics by tossing out an anchor on one detail (ouch - that's bad writing), and often might, but doesn't always, lead to the most realistic choices.

As we learn more about how our brains make decisions outside of our awareness, being aware of, and being able to monitor, the shortcuts our brains take should serve us well.

I could not resist this free association, having recently learned that "Anchors Aweigh" was written in 1906 to be a swinging football song (which it is):

We rarely miss an excuse to discuss this law of nature. From a piece by Rob Norton at the Library of Economics and Liberty, which begins:

The law of unintended consequences, often cited but rarely defined, is that actions of people—and especially of government—always have effects that are unanticipated or "unintended." Economists and other social scientists have heeded its power for centuries; for just as long, politicians and popular opinion have largely ignored it.

The concept of unintended consequences is one of the building blocks of economics. Adam Smith's "invisible hand," the most famous metaphor in social science, is an example of a positive unintended consequence. Smith maintained that each individual, seeking only his own gain, "is led by an invisible hand to promote an end which was no part of his intention," that end being the public interest. "It is not from the benevolence of the butcher, or the baker, that we expect our dinner," Smith wrote, "but from regard to their own self interest."

Most often, however, the law of unintended consequences illuminates the perverse unanticipated effects of legislation and regulation. In 1692 John Locke, the English philosopher and a forerunner of modern economists, urged the defeat of a parliamentary bill designed to cut the maximum permissible rate of interest from 6 percent to 4 percent. Locke argued that instead of benefiting borrowers, as intended, it would hurt them. People would find ways to circumvent the law, with the costs of circumvention borne by borrowers. To the extent the law was obeyed, Locke concluded, the chief results would be less available credit and a redistribution of income away from "widows, orphans and all those who have their estates in money."

Read the whole thing.

The brilliant one-time lawyer and Warren Buffet partner Charlie Munger (I think the cynical - or should I say skeptical - Munger does the deep thinking, and Buffet is the practical guy) loves Robert Cialdini, who writes about influence and persuasion. Here's Cialdini's The Psychology of Persuasion.

(Also, a lifetime of thought is condensed in Poor Charlie's Almanac: The Wit and Wisdom of Charles T. Munger)

You bought a house two years ago, no money down, with a one-year teaser interest-only rate. You knew what you were doing: you gambled that in a year you might be able to make the second year's payments and, if not, the house would have more equity in it. That equity would belong to you.

Can you really blame the mortgage broker?

Or, maybe, you bought a second house or two to rent out, as an investment a speculation, with that same deal, planning to flip it when the time seemed right.

You had no skin in the game, except for your hope for wild profit - it was all the bank's money. You had nothing to lose.

Now the house is worth less than your buying price, and you can't keep up with this year's payment because you didn't get the promotion you hoped for. Logical (if dishonorable) person that you are, you consider dumping your committment and going back to renting again - or hoping that the taxpayer will somehow rescue your reckless real estate  investment gamble.

Well, not to worry. The Dems want to bail you out. McCain thinks it's nuts, and so do I. Am I a heartless Scrooge? In truth, buying a home mortgage is no different from an LBO, or buying options on margin. Didn't these people ever play Monopoly?

Newspapers and pandering politicians call these unlucky gamblers "homeowners," but they aren't. They own nothing but debt and a contract.

As prices drop, houses are becoming more affordable to credible buyers instead of crazy gamblers. And, in ten years, there will be another housing bubble. You can bank on it.

If your house is an investment, and not a home, sell it then.

Editor's note: There are comparable moral hazards with rescuing the banks. See Fed eyes Nordic-style bank nationalization. I am not convinced that we are at that point. Power-people see every problem as an opportunity for a power and/or money grab. Just label it a "crisis."

"Act only according to that maxim whereby you can at the same time will that it should become a universal law."

Was Immanuel Kant's Categorical (ie absolute) Imperative just a fancy way of coming around to the Golden Rule, as Bird Dog suggested the other day?

Kant's ethics fall in the category of deontologogical (ie duty-centered) absolutism: he said that one should not lie even to save a life (but I doubt that he ever found himself in that situation).

To my simple mind, teleological (outcome-based) ethics, like Utilitarianism, are not ethics or morals at all: our daily actions need to be teleological most of the time, but that is about practical judgement - not morality. As a foundation for a moral code, teleological ethics are insidious and dangerous.

Like most people, my moral codes are not carefully thought through. They are mostly inherited from a long line of Yankee Puritans, and Christianity-based. Thus far, they have kept me out of the clink, but have not protected me from doing my share of stupid, cruel, or selfish things. Like most people, I only focus on morals when presented with a moral dilemma that comes up on the radar, because the rest of the time I am on moral autopilot. I guess I'd have to say that my morality is neither deontological nor teleological, but mystical as G.K. Chesterton would say (Ten Commandments, The Great Commandment, etc) in its origins, with a dose of my personal obsessionalism on top.

Still, it's an interesting thought experiment to spend a day thinking about how - or whether - my daily decisions might be different if I consciously and deliberately pretend to adopt a different moral foundation.

Image: Immanuel Kant

Dr. Bliss comment: You are right that one's morality is not arrived at by deliberate thought. Guilt and morality are quasi-internalized during youth. After that, it's all about just learning the rules, laws, and socio-cultural expectations to avoid a messy life. Maybe I will post a draft of a piece I once wrote on the subject for a lay audience.

I do not think that I like Eliot Spitzer, but I don't know him as a person. I do know that if he came to me for comfort and help, I would be happy to offer it to him as a fellow flawed, sinful, and foolish human. I would pray with him for himself and for his family, who are surely suffering for his idiot behavior.

However, his story got the brain thinking about how, if you do 999 good, charitable, loving things in your life, and one bad, illegal thing (not that Spitzer is in that category - I doubt it, based on how he handled his powers as a prosecutor) - you are screwed if you get caught.

Nobody will care about the other 999.

That is why cops say that there are only two kinds of people - crims that haven't been caught, and those who have been. One must be careful in this life, because it can blow up in an instant.

Sowell notes that the cost of incarceration in some states exceeds the costs of higher education.

The point, of course, is that when people (not Sowell) talk about those costs, they ignore the monetary and social costs of letting those folks loose on us. That's the fallacy. On the other hand, MA can send 'em all to Harvard for all I care, if they want to.

It has nothing to do with Rudy Giuliani's "broken window" approach to restoring civilization to NYC (which is no fallacy - it worked well, because providing latitude in the little things, filth, petty crimes, bums and addicts sleeping in parks, hostile squeegee men, etc. implicitly endorses latitude in bigger things, leading to an atmosphere of anarchy that nobody wants to experience).

The excellent Bastiat QQQ yesterday brought it to mind. Bastiat's famous parable of the Broken Window explains how a kid breaking a window, despite the expenditures to repair it, on the bottom line does no favor to the village's economy.

While some Keynesians might argue otherwise, I would make the case that, although maintenance of things we care about is a large part of an economy - cars, houses, boats, gardens, horses, dogs, bodies, etc - the fallacy there is the failure to reckon the opportunity cost of the money on the part of the window-owner.

I recently posted on the subject of the pseudo-rationality that ensues when the costs of an event are calculated, but is not compared to the costs of inaction or of alternate actions - or the advantages thereof.

If anyone were to calculate the global economic advantages of global warming, for example, I think everyone would be praying for it - but I doubt it will occur in any meaningful way.

From Mediocracy:

Steven Pinker has become a bit of a hero for those not entirely seduced by the mediocratic project. He is perhaps the only prominent academic prepared to trumpet the idea that ability is at least partly inherited. This idea has, apparently, become highly controversial, a fact which a visiting Martian might find rather bizarre. When the Financial Times reviewed The Blank Slate, it treated Pinker as some kind of firebrand radical, referring to his "dangerous work", and that it "would be best if it didn't get into the hands of those who would use it to terrifying ends".

and

... if people's sense of well-being comes from an assessment of their social status, and social status is relative, then extreme inequality can make people on the lower rungs feel defeated even if they are better off than most of humanity ... The medical researcher Richard Wilkinson, who documented these patterns, argues that low status triggers an ancient stress reaction ... Wilkinson argues that reducing economic inequality would make millions of lives happier, safer, and longer. (ibid)

An example of pseudo-rationality: in this case, an incomplete analysis that looks cogent but is actually biased. What it leaves out is (a) that we can only reduce ex post (= after the event) inequality by changing the rules of the game, and (b) that this is certain to have its own associated costs, which are left out of the equation. The need to compete for status is no less likely to be an important human drive than the need for status itself. If you make it harder for people to win, that may also generate stress. While there is plenty of research purporting to show the stressful effects of inequality, I doubt there is much (if any) looking into the stressful effects of intervention, restrictions, red tape, or deselection on ideological grounds (the flip-side of affirmative action).

Mediocracy thus presents an excellent case of pseudo-rationality in which the human costs of an intervention are ignored. In my experience, failure to enter these costs into calculations generally results in further problems which also end up begging for another government intervention to try to correct. Thus governments and agencies grow, on the fertile soil of their own manure.

It turns out that Aristotle, not Jean Buridan, first came up with the logical paradox of the hungry, thirsty ass who dies, paralyzed by indecision between a bucket of water and a pile of hay.

Viking mentions the Dem version, with its apparent solution:

It's the political equivalent of Buridan's ass: with no defining issue to differentiate the candidates, Americans gravitated towards the one you'd like to have a beer with and watch a little football.

Our editor mentions another one: A MA Yankee torn between his attachment to the Berkshire Hills and Cape Cod. (God forbid that leaves you stuck inside of Worcester, MA with the Memphis blues.)

Via Overcoming Bias:

A superintelligence from another galaxy, whom we shall call Omega, comes to Earth and sets about playing a strange little game.  In this game, Omega selects a human being, sets down two boxes in front of them, and flies away.

Box A is transparent and contains a thousand dollars.
Box B is opaque, and contains either a million dollars, or nothing.

You can take both boxes, or take only box B.

And the twist is that Omega has put a million dollars in box B if Omega has predicted that you will take only box B.

Omega has been correct on each of 100 observed occasions so far - everyone who took both boxes has found box B empty and received only a thousand dollars; everyone who took only box B has found B containing a million dollars.  (We assume that box A vanishes in a puff of smoke if you take only box B; no one else can take box A afterward.)

Before you make your choice, Omega has flown off and moved on to its next game.  Box B is already empty or already full.

Omega drops two boxes on the ground in front of you and flies off.

Do you take both boxes, or only box B?

Decide, then read about it.  Yes, it is related to the Prisoner's Dilemma.