Friday, November 22, 2013

Anchors Away! (TFS part 6)

I am reading Thinking, Fast and Slow, by Daniel Kahneman. In this series I will summarize key parts of the book and supply some comments and reflections on the material.

Part II: Heuristics and Biases
Chapter 11: Anchoring

Summary:

Anchoring occurs when people consider a particular value for an unknown quantity.

In a study, judges were asked to sentence a shoplifter after rolling (weighted) dice. "On average, those who had rolled a 9 said they would sentence [the shoplifter] to 8 months; those who rolled a 3 said they would sentence her to 5 months; the anchoring effect was 50%."

Why do we anchor? It is partly a System 1 bias of priming. It is partly a System 2 adjustment process. When answering we start at the anchor then adjust in the correct direction until we are "unsure." This leads to reporting the end of a confidence interval and systematic bias in the direction of the anchor.

How do you correct for anchoring in negotiations? Focus your attention and search memory for arguments against the anchor; focus on the minimal offer you think the opponent would accept. This more actively engages System 2 and removes the anchoring bias.

"The main moral of priming research is that our thoughts and our behavior are influenced, much more than we know or want, by the environment of the moment."

My Thoughts:

This is the first chapter where I got the feeling that every solution being presented to correct for System 1 biases can be summarized as "Pay more attention! Engage System 2!"   Which is fine; I agree; but there is only so much attention that can be paid (budget constraint!), and he doesn't talk much about ways to engage that System 2 thinking process.  There are lots of ways people engage System 2. For example, having rubrics, checklists, or standards in place that help you focus on the decision process, being consistent, and conforming to an established precedent.

If a really important decision is coming up, acknowledge you are attention constrained and focus on that problem and your psychological biases related to that problem rather than on whether you are being tricked by the way the supermarket stocks their shelves that day or something.

Rules also can help combat anchoring (and of course other biases), too. One of the reasons we have mandatory sentences is so that there is less discretion and more consistency in judges' sentences.

But rules don't always help; they can introduce another anchor, so there is a tradeoff here. Kahneman asks us to consider the effect of capping damages in personal injury cases to $1 million. This could anchor small cases, pulling up awards that otherwise should be much smaller. It could also prevent a correct award in the rare case more than a million dollars is deserved.

Food for Thought:

1) How free are we to make our own decisions? How much does the environment affect our decision process?

2) What is unbiased opinion?

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