3 Unexpected Psychological Effects


A MAD HEMORRHAGE

Aside: Without really planning on it, the blog went on haiatus for a while (I think it summered in the Hamptons).

 

PSYCHOLOGICAL EFFECTS ARE EVERYWHERE

Consider a pair of jeans. If you see it with a price of $100, but it's on sale today for half-price, how do you feel about it? How would you feel about the exact same pair of jeans being sold for $50 with no discount? The original price of an item can act as a reference point. The discount can make us feel like we've gained something, when we've actually gained exactly nothing. This is a psychological effect. You might also call it a cognitive bias.

Psychological effects are everywhere. Much of poker is psychology. Same for chess, job interviews, police interrogations, and even parenting.

Yes, being a parent involves psychology. I'm constantly aware of the need to give my daughter healthy food without running afoul the Forbidden Fruit Effect.  Whenever I limit her access to something it seems to make her want it more -- sometimes. When we use it on healthy foods it only works if she liked them to begin with. We've had great success with strawberries and blackberries. I've heard that wrapping anything in a McDonald's wrapper makes it taste better to kids.

Sometimes, when you understand a psychological effect you can use it to benefit someone. When you don't even know it's there you really can't hope for much. You might get lucky, or you might get blindsided.

 

1. TORT REFORM

Healthcare reform is very needed in this country. Millions of people need better healthcare. I, for one, am very happy about the Affordable Care Act, but the debate appears to be endless, each side digging in and demonizing the other. One point of disagreement has been tort reform -- the capping of non-economic damages which can be paid out to plaintiffs.

The Republicans have said since the beginning that tort reform must be included. President Obama said early on,

what I would be willing to do is to consider any ideas out there that would actually work in terms of reducing costs, improving the quality of patient care. So far the evidence I've seen is that caps will not do that.    [60 Minutes, 2009]

On other occasions the president pointed out correctly that these payouts account for very little. They account for less than one half of one percent of healthcare costs. Furthermore, out of all patients who are harmed by their doctors, only 4% ever sue [Tom Baker, "The Medical Malpractice Myth"].

The Republicans stymied president saying that it was a very important issue to them. If it had actually been important to them, most people think they would have done something about it during the Bush/Cheney years. It appears more likely that they used it as a reason for not supporting healthcare reform. However, I believe it is very important.

How could less than one half of one percent be an issue at all, much less a big one?

Imagine you are a doctor. You have a patient with a set of symptoms. Most of these symptoms could be associated with literally thousands of diseases. You do your best to narrow it down, but it all comes down to a guess. We all face risks every day, but doctors are in a unique situation. Historically doctors have always had to face death, but now they face something else as well -- malpractice lawsuits.  The threat of death inspires doctors to do their best job.  Lawsuits inspire them to cover their hind ends.

When a patient dies or suffers injury, the doctor usually has to face the family and tell them what happened.  The threat of litigation literally changes the game. Malpractice suits can cite that certain procedures were not done and that they could have helped. Any doctor who wants to survive such litigation is motivated to order each and every test in existence, "just in case." Not only have superfluous tests and procedures been named as one of the significant factors in our expensive healthcare system, they often cause more harm than good.

Some suggest that a list of "best practices" will inhibit the unnecessary tests. I submit that doctors will continue to order as many superfluous procedures as could potentially have been ordered. The psychological pressure on doctors is the real culprit.

 

2. STEALING BASES

Sabermetrics is the name given by Bill James to a kind of statistical analysis of baseball. The name comes from SABR (Society for American Baseball Research). Under Sabermetrics all elements in a game have comparative value toward producing a win or a loss.

All elements of a baseball game (e.g.: outs, runs, walks) are weighted so their respective values can be compared apples-to-apples. For instance, the value of an out is almost three times the value of a stolen base. Values like these help answer important questions, like "Should I steal a base?"

Using this rule, if you try to steal and are caught, you need to steal three more bases just to break even. According to some sabermetricians, if you can steal with an 80% success rate, you should go right on ahead and steal that base. The list of players with at least an 80% success rate (career) is very short. Alex Rodriguez barely makes the cut at 80.7%. Derek Jeter isn't even on the list. Does this mean that Jeter should stop trying to steal?

This is where you might want to complain about all the details I'm hand-waving away: Some bases are worth more than others; it all depends on who's ahead and how much of the game is left; etc. Baseball can get complicated quick. As Berra said, "In baseball, you don't know nothing." There are many important factors. I want to focus on the overlooked psychological effect.

If everbody with a less than 80% success rate stopped stealing bases, the game would change. The pitching would change. The threat of a steal represents a cognitive load on pitchers and catchers (I payed catcher in little league).

Currently, when a man is on base, he stands a little bit off of it. The pitcher must pay him close constant attention. Until his pitch starts, he can throw the ball to try to get the runner out. Once he starts the pitch, however, he is committed to it. He better follow through, and hope the catcher can get the runner out. If players stop stealing bases, the pitchers and catchers will have much less to worry about -- no need for constant vigilance. No need to be ready to throw right after the pitch. So much of the game's tension would be lost.

Under statistical analysis it is very difficult to guage the true value of an action. We are humans, after all. Our thoughts and behaviors are governed by psychology -- by definition. I believe that psychological effects will imbue base stealing with more value than could be computed using sabermetrics. I came to this conclusion independently, but I am not the only one who thinks this way.

 

3. MULTI PARTY ELECTIONS

Why do we vote? Why do we want to freedom to vote? Personally, it's because I want to have influence over those who make big decisions on my behalf.

As a country we hold sacred this right to vote. Anything that gets in its way upsets us -- and rightly so. Half of us were upset when the Supreme Court sided with Bush in Bush v. Gore (OK, maybe more than half). The decision was made outside the will of the people. What made it even more upsetting was the fact that the vote was so close in a state where certain democratic-leaning demographics had been significantly disenfranchised, turned away from the polls for spurious reasons. Apart from this tragic case, there are countless other examples where the voice of the people did not come through clearly. One clear example of this is multi-party elections.

In multi-party elections everybody makes the same calculation: What are the chances of my first choice winning? If they're not good, what about my second choice?

I faced this decision during the last gubernatorial election here in the beautiful state of Maine, USA. I voted for my first choice, the independent candidate. Many others who wanted him, did not vote for him because they assumed (incorrectly) that he had no chance. Most of them voted democrat instead. In the end, the race was very close between the the independent candidate and the republican, with the the democrat in a distant third. In the end, the republican candidate won, and we've been paying for it ever since. As is typical in such cases, a third party can split the vote. The state of Maine didn't get it's collective first choice, or even its second. A split vote typically guarantees that the state gets its third choice.

Whenever a voting public cannot successfully elect its preferred candidate, their voice has been stifled. In our case it was not by design, but merely an artifact of our antiquated system. There is a better system: ranked-choice voting.

Also called Instant-runoff voting, ranked-choice voting is much better at conveying the voice of the people. Instead of voting for one candidate, you can vote for more than one, indicating your first, second, or even third choice. When votes are tallied the first time, only first choices are examined. If the winner has received more than 50% of the votes, he or she is declared the winner. Otherwise the candidate with the fewest votes is removed, and the votes are tallied again. On the second counting, some of the ballots will have selected the candidate who is no longer in the running. For those ballots, the second choice is tallied. Eventually, one candidate will receive more than 50% of the votes and be declared the winner. This system isn't perfect, but it represents a significant improvement over what we currently use where I live. Many elections around the world are run this way.

 

FINAL STROKE

So then, keep your eyes peeled.  If you don't know what psychological effects are in play, you might be the one being played.

 


2 Responses to “3 Unexpected Psychological Effects”

  1. Sowmya Rajasekaran Reply | Permalink

    Hi Graham,

    I have been waiting for such a long time to read your next post... And, it is very interesting and thought-provoking, as usual. :-) Thanks. :-)

    Some points: (a) cognitive bias: I wonder if we can consider irrational economic behaviour as a function of information asymmetry. Take the example of increasing MRP price and then offering a discount. We believe that buyers are exhibiting irrational behaviour. Maybe, it is only reaction to information asymmetry.

    At the time of making the buying decision, the individual did not have several critical information – while the company did – about the product. For example, cost of production and expected returns on investment, direction and magnitude of price change, total market demand and supply, etc. In the absence of such information to determine a fair exchange price for the product, the individual is left with little choice but to depend on reference points to make the buying decision. The reference points are usually some number based on the individual’s own past or other people’s experiences. But then, even these reference points are manipulated (hiking MRP and offering a discount, for example).

    We tag the behaviour as irrational because of the utility (or, pleasure points) the individual seems to derive from it but isn’t there an information asymmetry aspect to this behaviour? If we were to remove the asymmetry, in what way would the behaviour change and to what extent should the behaviour be termed irrational? Should we consider irrational economic behaviour in isolation or as a function of information asymmetry?

    (b) healthcare - the cost of “just in case” tests: This is again only my hypothesis but a participatory learning algorithm with appropriate incentive structuring should solve much of the problem.

    (c) stealing bases - computing psychological effects: any mathematical technique that does not acknowledge the creative faculty of the human mind is bound to fall short of the goal! pun intended :-)

    (d) elections and individual choice: it is a collective decision making and individual choice problem – technology has advanced so much that we should look for alternatives. There are some exciting projects, like FuturICT (http://www.futurict.eu/), in participatory computing and the solution probably lies there. :-)

    Thanks again for a wonderful post and your readers are also looking forward to a post on one of your ‘aha’ moments.

    :-)

  2. Graham Morehead Reply | Permalink

    Thanks, Sowmya,

    You are absolutely right about that first point. Economists use the term "irrational" to describe behavior, but some of them consider that the same as rational, but with imperfect information. In other words, it is possible to build a model of irrational actors with identical information that generates the same behavior as a model of purely rational actors each with different imperfect sets of information.

    About healthcare, as long as doctors have to defend themselves in court against unlimited lawsuits, the incentive to order unneeded tests will still be strong.

    Thanks for brining FuturlCT to my attention!

    Graham

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