A complete shortlist of the various behavioural biases we suffer from
In 1932, Rolf Dobelli came across the diaries of his great-uncle. His uncle had immigrated from a tiny Swiss village to Paris to seek his fortune. In August 1940, two months after Paris was occupied by the German Nazi forces, he noted: “Everyone is certain that the Germans will leave by the end of the year. Their officers also confirmed this to me. England will fall as fast as France did, and then we will finally have our Parisian lives back—albeit as part of Germany.” Instead of two months, the Occupation lasted for four years. The long German Occupation of France is now seen not as an accident but part of a military strategy. This is how history comes across to us always: What has actually happened appears to be the most likely of all scenarios, the most obvious outcome and we go on to justify it with reason. Human minds find it hard to think of alternative paths of history—what else could have happened. We are easy prey to what is called a ‘hindsight bias’.
Over the past two decades, behavioural science has opened our eyes to how we actually think and behave. Most often, we act irrationally. Hindsight bias is just one such example. We suffer from endowment effect (cling to things), can’t forget the time and cost spent on a losing enterprise (sunk cost fallacy) and judge decisions by their outcome (and not the process) and come to conclusions by first impressions (primacy and recency effect).
Books describing irrational behaviour and how to deal with it are now common, carrying titles such as Predictably Irrational, Thinking, Fast and Slow, Wilful Blindness, Your Money and Your Brain, The Winner’s Curse, Gut Feelings, Nudge, The Signal and The Noise, etc. Many describe the same famous experiments and, ultimately, hold a mirror to us about the inner workings of our mind, which invariably surprises us.
This book topped the German bestseller list and it is now an international bestseller as well. The book is divided into 99 chapters of only three-four pages each, focusing on one kind of behavioural trait or error that characterises us. The subject matter lends itself to real-life stories and experiments, making the book interesting to read. But Dobelli has chosen these with care. You will find scores of appealing anecdotes.
Here is one. In 1913, Maximilian Ringelmann, a French engineer, studied the performance of horses. He concluded that the power of two animals pulling a coach did not equal twice the power of a single horse. Surprised by this result, he extended his research to humans. He had several men pull a rope and measured the force applied by each individual. On average, if two people were pulling together, each invested just 93% of his individual strength, when three pulled together, it was 85% and, with eight people, it was just 49%.
This is called social-loafing effect. It occurs when individual performance is not directly visible; it blends into the group effort. It occurs among rowers, but not in relay races, because here, individual contribution is evident. Social loafing is rational behaviour: why invest all your energy when half will do—especially when this little shortcut goes unnoticed? Quite simply, social loafing is a form of cheating of which we are all guilty even if it takes place unconsciously just as it did with Ringelmann’s horses.
Here is one more that describes the importance of knowing what you really know and have no opinion about the rest. After receiving the Nobel Prize for physics in 1918, Max Planck went on a tour across Germany. Everywhere he delivered the same lecture on new quantum mechanics.
Over time, his chauffeur grew to know it by heart. He said: ‘It has to be boring giving the same speech each time, Professor Planck. How about I do it for you in Munich? You can sit in the front row and wear my chauffeur’s cap.’ Planck liked the idea, so that evening, the driver held a long lecture on quantum mechanics before a distinguished audience.
Later, a physics professor stood up with a question. The driver recoiled: ‘Never would I have thought that someone from such an advanced city as Munich would ask such a simple question! My chauffeur will answer it’ he said, passing the mike to Planck.
This apocryphal story has a genuine message: According to Charlie Munger, Warren Buffett’s partner in Berkshire Hathaway, there are two types of knowledge.
First, real knowledge that we see in people who have committed a large amount of time and effort to understanding a subject. The second type is chauffeur knowledge—knowledge from people who have learned to put on a show. “Unfortunately, it is increasingly difficult to separate true knowledge from chauffeur knowledge,” writes Dobelli. “With news anchors, however, it is still easy. These are actors. Period. Everyone knows it. And yet it continues to astound me how much respect these perfectly-coiffed script readers enjoy, not to mention how much they earn moderating panels about topics they barely fathom. With journalists, it is more difficult. Some have acquired true knowledge. Often, they are veteran reporters who have specialised for years in a clearly defined area… The majority of journalists, however, fall into the category of chauffeur… Their texts are one-sided, short, and—often as compensation for their patchy knowledge—snarky and self-satisfied in tone.”
Rolf Dobelli, a PhD in philosophy, the co-founder of Getabstract.com, has not written anything new. Original work on this subject has been done by Daniel Kahnemann (Nobel Prize winner), Amos Taversky, Gerd Gigerenzer and Richard Thaler. Dobelli has put it all together making it highly accessible with bite-sized chapters. And, yet, this book has become a bestseller. In that sense, its success is based on the same human irrationality it describes! Having said that, if there is just one book you should buy on this topic, this is the one, available at a special Indian price.