Monday, April 19, 2010

He Must Have Deserved It (Part 11 of Cognitive Biases)

Do people always get what they deserve? Would you sooner get a $5 discount or avoid a $5 surcharge? If you get 99 heads in a row, are the odds of another head 50/50? Do you like the familiar? Is everything more expensive these days?

In this installment of Cognitive Biases, we'll cover the just-world phenomenon, loss aversion, the ludic fallacy, the mere exposure effect, and the money illusion.

The illustration is by Gustav Doré from the Book of Job.

Just-world phenomenon

“He must be wicked to deserve such pain,” wrote Robert Browning in “Childe Roland to the Dark Tower Came,” and indeed the idea that people get what they deserve, both for good and evil goes back through history. When Job was suffering, his friends Bildad, Zophar, and Eliphaz each argued that Job must have done something wrong, because God would not visit such terrible punishments on an innocent.

The cognitive bias known as the just-world phenomenon refers to the tendency of people witnessing an otherwise inexplicable injustice to look for reasons the victim might have deserved it. In theology, the problem of evil falling on the apparently innocent is known by the all-too-apt name of theodicy.

It’s been demonstrated scientifically as well. In one study, researchers gave women what appeared to be painful electric shocks while working on a difficult memory problem. Other women of broadly the same age and social group who observed the experiment appeared to blame the victim for her fate, praised the experiment, and rated her as being less physically attractive than did those who had seen her but not the experiment.

In another study, female and male subjects were told two versions of a story about an interaction between a woman and a man. Both variations were exactly the same, except at the very end the man raped the woman in one and in the other he proposed marriage. In both conditions, both female and male subjects viewed the woman's (identical) actions as inevitably leading to the (very different) results.

The rain, it is said, falls on the just and unjust alike. Don’t make negative assumptions about people you don’t even know.

Loss aversion

Would you sooner get a $5 discount, or avoid a $5 surcharge? It’s the same $5 either way, but depending on the frame, there’s a dramatic difference in consumer behavior. Some studies suggest that the value of avoiding a loss is psychologically twice as powerful as the value of a gain. In one study of consumer reaction to price changes to an insurance policy, a price increase had twice the effect on customer switching as did a price decrease.

Loss aversion also plays into “sunk cost” bias. If you’ve been gambling and you’re in the hole, it’s the tendency to keep playing in hopes of recovering the lost money. The refusal to admit mistakes is part of loss aversion. The more time and energy you’ve committed to a particular course of action, the harder it is to walk away from it, regardless of the evidence.

Ludic fallacy

If you’ve flipped a coin 99 times and gotten heads each time, what are the odds of getting heads on the next flip of the coin? We’ve already learned about the gambler’s fallacy, so we know the odds of the next flip coming up heads are still 50/50.

But wait a minute. If you’ve flipped a coin 99 times and gotten heads each time, wouldn’t you start to suspect there was something wrong with the coin? The ludic fallacy (a term coined by Nassim Nicholas Taleb in his 2007 book The Black Swan) is the assumption that messy situations in the real world fall neatly into the models of games and dice.

There’s a lot of value in simplifying a complex problem to identify core principles, but there’s a strong risk of believing the simple model is identical to the messy real world, and that’s wrong. Theory and models are subordinate to reality, not superior to it.

Mere exposure effect

People tend to develop a preference for things merely because they are familiar with them. In studies of interpersonal attraction, the more often a person is seen by someone, the more pleasing and likeable that person appears to be.

When subjects were exposed to an unfamiliar stimulus in laboratory experiments, they reacted to it more positively than other, similar stimuli which had not been presented. In one variation, subjects were shown an image on a tachistoscope for a very brief duration that could not be perceived consciously. This subliminal exposure produced the same effect, though it is important to note that subliminal effects are generally weak and unlikely to occur without controlled laboratory conditions.

The effect is strongest when unfamiliar stimuli are presented briefly. Mere exposure typically reaches its maximum effect within 10-20 presentations, and some studies even show that liking may decline after a longer series of exposures. For example, people generally like a song more after they have heard it a few times, but many repetitions can reduce this preference. A delay between exposure and the measurement of liking actually tends to increase the strength of the effect. Curiously, the effect is weaker on children, and for drawings and paintings as compared to other types of stimuli. One social psychology experiment showed that exposure to people we initially dislike makes us dislike them even more.

Money illusion

“I asked for a three-penny loaf,” wrote Benjamin Franklin about his first day in Philadelphia in 1723, “and was told they had none such. So not considering or knowing the difference of money, and the greater cheapness nor the names of his bread, I made him give me three-penny worth of any sort. He gave me, accordingly, three great puffy rolls. I was surpriz’d at the quanity, but took it, and, having no room in my pockets, walk’d off with a roll under each arm, and eating the other.”

When this story was first presented to me in school, the teacher and students discussed how cheap bread must have been in those days. A loaf for a penny! But, of course, that’s not true. The average weekly wage was about a dollar, meaning a penny represented about half an hour’s worth of work. Today, the median personal income for a 25 year old with a bachelor’s degree is about $50,000, and (I just checked) you can buy a loaf of white bread for $1.00 at the local store. That means bread costs about 3 minutes worth of work, or a tenth as much as Benjamin Franklin paid.

Has gas gotten more expensive? In 1958, gas cost 24¢ a gallon, but that’s $2.24 in current terms. How about postage? In real terms, a first class stamp today costs less than it did in the 1940s, when it hit an inflation-adjusted spike of 51¢ (4¢).

The face value of money isn’t as important as its purchasing power, but psychologically, people don’t believe it. If you get a 2% pay cut, it’s unfair and hugely damaging to morale. But if inflation is 4% and you get a 2% raise, you’re in exactly the same position, but you’re more likely to think you’re being treated well.

Previous Installments

Part 1 — Bias blind spot, confirmation bias, déformation professionnelle, denomination effect, moral credential effect.

Part 2 — Base rate fallacy, congruence bias, experimenter’s bias

Part 3 — Ambiguity aversion effect (Ellsberg paradox), choice-supportive bias, distinction bias, contrast effect

Part 4 — Actor-observer bias, anchoring effect, attentional bias, availability cascade, belief bias

Part 5 — Clustering illusion, conjunction fallacy, cryptomnesia

Part 6 — Disposition effect, egocentric bias, endowment effect, extraordinarity bias

Part 7 — False consensus effect, false memory, Forer effect, framing, fundamental attribution error

Part 8 — Gambler’s fallacy, halo effect

Part 9 — Hawthorne effect, herd instinct, hindsight bias, hyperbolic discounting

Part 10 — Illusion of asymmetric insight, illusion of control, illusory superiority, impact bias, information bias, ingroup bias, irrational escalation,

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