Monthly Archives: November 2011

Human (ir)rationality: A few thoughts

People are fascinating. They smoke, take drugs, gamble, have unprotected sex (not necessarily in this order), procrastinate, become shopaholics/chocoholics [just google how many people blog under the name of “Chocoholic”]/ and all other sorts of -holics, fail to use hands-free mobile phones in cars, keep on dieting “tomorrow” [sounds familiar?], skip their regular medical check-ups, fall prey to biases (see a simple list here) and logical fallacies and do not give a damn.

Two months ago, I launched a questionnaire that was supposed to test to what degree are we subject to the sunk cost fallacy (explanation here). When I saw the results, I could not believe my eyes how irrational we are. Two examples:

First, I asked the participants whether they would stay in a cinema if the first 15 minutes of the film were extremely boring. Almost 40% of respondents said that they would, “because they have already paid for the ticket”.

Do you see the irony there? They did not expect the film to get better, they didn´t want to stay and enjoy the company of someone, they didn´t want to leave and do something they would enjoy more (although all these rational options were on offer). They just felt that if they didn´t sit in the cinema for the two hours, they would have wasted the money. (As if they didn´t waste it at the second they paid for the ticket, ignorant of the fact how bad the film was.)

Second, the question was along the lines of: “Imagine that you are an owner of a firm. You are building a factory A which has so far cost you 10 billion. If you wanted to finish it, you would have to pay additional 10 billion. Alternatively, you could abandon this building and buy factory B (equivalent to factory A) for 9 billion. What will you do?”

69,5% of respondents answered that they would finish building the old one. Do you see the problem? This should have been a simple mathematics question (10 > 9, hence option B is cheaper, yay!), but it turned out to be the question with the highest percentage of “irrational” answers (please ignore the squabbles about the proper definition of this word, let´s stick with the intuitive definition “irrational decision” = “stupid”).

You say “Fine, but that is not that important – who cares about sunk cost, anyway?”. Well, another example: Yesterday I was reading Predictably Irrational by Dan Ariely when I came across the results of his survey on the effect of arousal on our decision-making. Or, to be more precise, on male decison-making. So while only 5% of nonaroused men would “slip a woman a drug to increase the chance that she would have sex with [them]”, 26% of aroused men would do so (420% increase). Or while 88% of nonaroused men claimed they would use a condom if they didn´t know the sexual history of a new partner, only 69% of aroused would (22% difference). Scary, if you ask me. And worrying. Not just the numbers themselves, but also – as Dr. Ariely himself points out – the degree to which people underestimate their reactions in a less-than-cold-blooded state of mind.

The problem is that – unlike in many other cases – education doesn´t seem to be the cure. As I was skimming through my data on the sunk cost fallacy, I noticed that the level of attained education did not affect the results significantly. (Funnily enough, even the people who have an Economics degree and know exactly what “sunk costs” are ticked the “irrational” options.) Interestingly, age, income and nationality seemed to play a bigger role (the older and richer you are, the more likely you are to avoid this particular logical fallacy – and preferably, you should be European).

At the end of my musings I came to two conclusions: A) Behavioral economics deserves more attention in classes, perhaps as early as in high school. Chances are, if you warn people early enough how many and which mistakes someone else has made (and WHY), some of them will not repeat them. Do not teach the kids all bones and parts of our brain in Latin – teach them how human mind reacts to certain states (passions, anger, lust) and how to avoid (or, realistically speaking, significantly decrease the probability of) waking up in the morning in someone else´s bed without a clue what happened the night before. I.e. teach them to THINK and predict better their behaviour. B) Human irrationality should be of greater concern in economic models, because we all at some point do “stupid” things and do not behave in the way economists would like us to behave. No wonder half of all economic models that are taught on the undergraduate level are wishy-washy. Drop the assumptions and be brave enough to say “I only know that I know very little.”

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Posted by on 28 November, 2011 in Rationality


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Negotiation: The Seven Deadly Sins

The D-Day. The Decison day. You knew it was coming. You knew you would have to speak up at some point. You knew you would have to bargain, argue and persuade. You dreaded the moment you would have to say, “Wait a minute, this is not in my interest at all!” Boom. There you are. One of the most crucial (business) meetings ever. Or perhaps not ever, but a pretty important one anyway. What are the steps you should care not to make and what are the world you shall never utter?

Deadly sin #1: Showing up late. The same old story you might hear from all directions, yet so vital and so often neglected. Not only that you do not look professional when you are unable to plan your schedule, but you are also being impolite from the very first moment – even before you actually bother to show up.

Deadly sin #2: Being physically present, yet not mentally. Sure, you have all those cool and shiny gadgets and like to show off with them, but it is extremely rude to answer e-mails or check your Facebook whilst in the middle of discussion. Not to mention that you are much more likely to miss an important point of the debate. If you feel the urge to do so, get help.

Deadly sin #3: Not listening. The words your partner says enter your left ear and exit though your nose or the left ear without leaving a trace. You think you are listening, you may be even looking straight into the other person´s eyes, but if you got a simple question along the lines of “What did I just say?”, you would be left dumbfounded.

Deadly sin #4: Speaking for somebody not present who has never given such permission. Even though you think you know what your colleague wants or would have liked to said, do not say it aloud. Chances are, you are wrong – and even if you were right, your colleague would have preffered to speak up for himself/herself. You are not a fortune teller, so do not pretend to be one.

Deadly sin #5: Not being prepared. If you really want to persuade someone about the benefits of your proposal, you cannot expect to be able to do so without thinking hard. There is nothing worse than wasting time with someone who needs ages to express himself/herself and does not know precisely where all the arguments (s)he uses are headed.

Deadly sin #6: Not making notes. During a (hopefully fruitful) discussion you and your partner are likely to come up with unexpected and possibly smart points that should not be forgotten. You do not have to write essays, a short note will do; and may prove invaluable the next month when you are analysing why that particular project failed. Perhaps you were somewhat aware of future difficulties, but just because they came up only in the discussion, they got lost.

Deadly sin #7: Repetition. Do not repeat yourself over and over again. Your negatiation partner is not stupid and has heard the same story twice already. He/She is not buying your arguments, deal with it. Either come up with something new – be it new evidence, example or a whole new argument, or rethink your position. Pretending to be a CD playing the same track over and over again does not deliver results. On the contrary – it just annoys people.

A personal note: Today, my negotiation partner commited 3 out of these sins. So what? He lost on all fronts in 20 minutes´  time. Morals? Thou shall not negotiate, sinner!

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Posted by on 21 November, 2011 in Entrepreneurship, Random


Come to the Geek side. We have pi

“May I see your T-shirt? (Pause.) Oh, what´s that? (Shock/disbelief/disgust.) NO, this definitely isn´t normal!” And there I am, a smiling geek with a normal distribution formula (explanation here) on my chest. I love these responses – they are so frank when people find out that there actually are people (“people”?) out there who enjoy mathematics, statistics and/or science. To be more precise, I love being “special”.

Believe it or not, the geek world is one of the most fantastic parts of this universe. The process of discovering and learning feels so rewarding, especially if you are surrounded by people who a) admire you or b) support you.

Let me share a couple of recent examples when I had a good laugh or two and my “normal” classmates could not enjoy the professor´s joke/slip simply because they never listen and/or never bother to think about the subject matter. To them, lectures are a necessary evil. But we, geeks who see those little puns, love them.

  • Prof. Norde: “Suppose a limit is not having a function…” [see here]
  • Prof. Dalton: “Let´s see the invisible hand…”
  • Prof. Uras: “All you need is love – and then, economics.” [here]

The other fun aspect of being a nerd is that you actually enjoy reading textbooks – I know, scary (provided that these offer you those little puns as well). Here is an example:

  •  “The infinitive in English has the form to + verb, as in ‘to go’, and can be used with an adverb, such as ‘boldly’. So, at the beginning of each Star Strek episode, Captain Kirk used the expresion ‘To boldly go …’ This is an example of a split infinitive. Captain Kirk’s English teacher should have taught him to say ‘To go boldly’ or ‘Boldly to go’. If Captain Kirk had been a Roman space traveler, speaking Latin, (…) in saying ‘Ire audacter’, Captain Kirkus would not even have the opportunity to split his infinitive.” (George Yule: The Study of Language)

However, being a “smartass” from time to time means much more than pure studying. Geeks from all around the globe develop their own culture – ranging from T-shirts, books and music to quips and mottos. Some examples:

  •  Schrödinger´s Cat is DEAD!
  • The Geek´s Guide to World Domination
  • 2+2=5 (for extremely large values of 2)
  • GeNiUS (simple explanation – google the periodic table of elements and look for germanium, nickel, uranium and sulfur)
  • Bell curve jokes – see here and here (video – 2:35)
  • Love letters in the form of equations (here)

Putting all these things together, being at little bit of a nerd can not only help you with your studies but also bring a lot of extra joy to your life. If you are studying something you are truly passionate about, you learn faster and have incentives to “go deeper”. There is no reason to feel ashamed for being called a geek (do not confuse with “Greek” or “Greeks“), because in the 21st century geek is the new “sexy“.

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Posted by on 15 November, 2011 in Education


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The curse of being an overachiever

A top student who always knows the correct answer, aces all exams and gets full marks for homework assignments. A student who is unhappy as long as there is someone else in class slightly better at a particular subject, a student who wants to excel at everything. Welcome to the world of an (average?) overachiever, who does everything in his/her power to be above average.

What an unhappy world this is, if such a student lands in an environment that does not challenge him/her. Getting straight A´s (and cum laude) is not a big deal – because “yeah, everybody can do it”. Sure, 20% of students may be failing and kicked out, but that does not make this overachiever feel any better. (S)He feels that “everything is too easy” and that “this cannot be one of the best universities in the world because I do not have to study that much”.

The problem is that the top students tend to put the benchmark for success very high and if they reach it without much work (read: if they do not break down twice before they reach that specific goal), they feel that they are not working hard enough. A logical consequence is that they take up an extra course (usually one for older students) and find the challenge they were looking for.

However, there are two scenarios what could happen after that: A) The overachiever finds the right ballance of work and finds it rewarding (plus having a CV extra is a nice bonus) or B) the overachiever suddenly has too much on his/her plate and fails.

Unfortunately, unlike his/her peers, the overachiever is unable to deal with failure that easily. Going to bar and drinking herself (himself) to sleep is not an option (because tomorrow is a deadline for an important assignment!) and going to the resit exam is so embarrasing! Depression, loneliness and frustration follow, even though this student may still be among the top 5% at the university. Freaky? …

Today´s overachievers have it tough since hardly anyone is aware of their mere existence, but there is a way to help them: If every university designed a programme for “normal” students and added an “extra” workload for ambitious people (e.g. Honours Programme) that would be neither too low nor too high, it would provide the high-flyers with an opportunity to feel that they are doing their best and the university would make sure that they can stand the extra pressure. Just like in microeconomic theory – more is better (the more chocolate you have, the happier you are), but only up to a certain point (you become sick). So simple, yet so difficult to understand for most institutions. What a shame. High-flyers are people too!


Posted by on 13 November, 2011 in Education


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A winner takes it all – and gets kicked out afterwards

How do you “normally” get into a university? You will probably have to pass some sort of a leaving exam (e.g. the British A-Levels or the German Abitur) or do well on standardized exams (e.g. SATs), get a fancy recommendation letter from your teacher and write a well-organized essay. Additionally, you may be required to pass an entrance exam or to come for an interview (see a couple of survival tips here) – and then hopefully, you get a letter with that crucial sentence “..bla bla bla accepted.” However, let´s see what happens if your admission is based on sheer luck.

Welcome to the Netherlands. A country where everything is possible. Unfortunately. A country where it is possible to land in a class of 75 people out of whom 50 got there on completely random basis. Right. One third of the people will be studying at a prestigious university because of their good grades, perfect letters of recommendation and interesting extra-curricular activities and the rest…were just lucky. How is this possible?

The Dutch system (for most, albeit not all (!) courses) works as follows: The university can select a predefined number of applicants in the so-called “decentralized selection” (i.e. based on high school grades, personal statement, etc.) – and the rest of the candidates are divided into four (or perhaps five) groups based on their expected final grades (i.e. the grades the students have not yet attained!). Subsequently, “slots are drawn” and – the formerly unsuccessful! – candidates are randomly (on a lottery basis) selected from these groups in fixed proportions. (Details about the process can be found here.) Fun.

The ramifications are everything but funny. The reality knocks on the door right after the first midterms. Out of those aforementioned 75 students only 7 (!) passed all five midterm examinations. Anybody would like to guess how many of them got to the university thanks to the lottery system…?

It makes me curious. Can anyone think of a reason why would any government require public universities to select the students on a random basis? Clearly, “offering a chance to less talented students” doesn´t work – they will be kicked out after the second semester the latest (due to the Binding Study Advice that requires every freshman to earn at least 60% of the compulsory credits).

Fun fact: On one midterm exam there were points deducted for wrong answers. Fancy guessing who happened to get a negative grade? Actually, got a worse grade than if this person was caught cheating? …

Cynical as I am, I can actually find one reason why this policy is a good idea: When a lot of people drop out the professor has much more time for the truly dedicated learners – which means that you get top education and have a lot one-on-one interaction. (Sure, you can – being equally cynical – point out that it is much more difficult to be among the top 10% of the students once there is only 20 of you…)

At any rate: Does any of you have an idea why would the universities want to keep this system of selecting students? Does it benefit anyone? Please, share your views. I have not been so curious for quite some time.

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Posted by on 6 November, 2011 in Education


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