Cognitive biases fascinate me. This is a fancy term for the various ways in which we delude ourselves in our thinking. The most fundamental delusion is often the belief that we don’t suffer from any cognitive biases. Most people believe they are above average in their driving ability. This is a statistical impossibility.
Behavioural psychologists have identified a number of cognitive biases that we are all susceptible to. These biases include such delights as “the hindsight bias, the endowment effect, the anchoring effect and loss aversion”.
The most damaging bias in our thinking is probably “the confirmation bias”. This flaw in our thinking is dangerous because it narrows our perspectives and contributes to misunderstandings of other viewpoints. It lies at the heart of political animosity. It provides the kindling for conflict and warfare. It creates the inability to appreciate other people’s perspectives that differ from our own.
The confirmation bias is the inherent tendency of humans to become entrenched in their thinking. It is the tendency of all of us to constantly reinforce our beliefs by surrounding ourselves with confirmation of our beliefs. To mix with others who share and reinforce our views. We view news, literature and social media that reinforce our beliefs. We tend to avoid or feel threatened by contrary viewpoints.
This is why religious cults prevent their members from encountering beliefs that don’t support their creed. Outside influences and ideas are tightly controlled. It is why modern politics has become so bitterly entrenched in many countries.
Humans don’t like having their beliefs challenged. Academics can be amongst the worst in this respect. Thomas Kuhn described this in the 1960s in his work on paradigm shifts. In most academic disciplines the prevailing belief system is vigorously defended because entire careers are vested in it. It takes a tsunami of conflicting evidence to change the status quo in the academic world.
We generally think we are far more rational than we actually are. Others act irrationally but we never do. Yet psychological studies have shown that all of us suffer significant blind spots in our thinking in aspects of life ranging from love to finances to parenting to work. We can never be objective about ourselves. Some thinkers believe an element of self-delusion is essential to a happy life. That people suffering clinical depression may have had this self-delusion stripped away. They are seeing stark reality stripped bare which can be very bleak. Maybe an element of self-delusion is essential to a good life.
Modern economic theory is built on the concept of the rational individual seeking to maximise his or her welfare in their decision making. They are not affected by the decisions of others. They are entirely rational and independent in their decision making. Behavioural economists have chipped away at this classical edifice in recent decades. They have discovered significant cognitive biases in human decision making. A delightful example is illustrated in an experiment called the “ultimate game”. Two strangers are paired up. One is given $100. She can offer a share to the other person. If the other person feels the offer is not “fair” he can refuse it and neither person gets anything. Results showed that if the offer was much less than 50 percent it was usually refused and both parties lost. No one got anything. This suggests humans have a very strong inherent sense of fairness which is often overlooked by conventional economic theory. If they feel a situation is unfair they would rather everyone shared the loss, including themselves.
But these cognitive biases are not as irrational as they first appear. The influence of evolutionary instincts on human decision making is huge and we overlook it at our peril. Modern civilisation is very recent in human history. The instinctive behaviours shaped by thousands of years as nomadic hunter-gathers living in small tribal groups still play a big role in our behaviours. Evolution matters.
We are herd-like in our behaviours. Tribalism is still hugely important. A sense of belonging to a wider group is fundamental to our existence. We are certainly influenced by the behaviour and beliefs of others. This is the basis for nationalism, not to mention modern sport.
We are often myopic in our decision making because life used to be nasty, brutish and short. Better to maximise short term pleasures. This may explain the epidemic of obesity in developed economies as well as difficulties in saving for retirement. Our inherent sense of fairness is also likely a product of ancient clan loyalty and trust which was essential to survival.
It is interesting to view such recent phenomena as Brexit and Trump through the lens of cognitive biases and evolutionary instincts. Tribalism and confirmation bias dominate the current political arena. This prevents an appreciation of differing viewpoints. Yet perhaps the “ultimate game” is also to blame? It may be playing out on a global scale. Those who feel excluded from the benefits of globalisation and technological progress feel a sense of unfairness. They prefer to penalise the winners even if it costs themselves as well. They are being rationally irrational. The big challenge for advanced democracies in the future will be to ensure that economic gains are shared fairly. The alternative could be that everyone loses.
Peter Lyons teaches Economics at Saint Peter’s College in Epsom and has written several Economics texts.