Author: Promise

Back in 2018, I was pursuing my master’s in public health. At the time, I had taken all the classes necessary for me to earn the degree. Yet, I wasn’t in a position to graduate because I still had my thesis to wrap up. To maintain my graduate student status, I chose to register for an independent study, where I was assigned two public health non-fiction books to read and reflect upon.

Since my reflection on the two books were not long enough to warrant further development into a manuscript for a scientific journal, I figured I’d share it here. I admit it’s also nice to see my thought processes back then and how they somewhat align with my current career as a researcher. In any case, below is an unedited reproduction of the reflection paper I wrote to earn a passing grade.

REFLECTION PAPER

Steven Johnson’s The Ghost Map, as well as Richard Preston’s Demon in the Freezer were two books that caused a paradigm shift in the perception of my future role in the public health sector. Prior to reading the books, I knew that I wanted to go along the research path. However, I did not want to merely conduct research for its sake. Rather, I knew that I wanted my work to have national and international significance for this generation and for the generations unborn. I believe that the lessons I learned from these two books have equipped me with the tools needed to attain my long-term career goals.

The first thing I learned from studying the two books is the fact that new ideas will always be challenged by proponents of the status quo. I realized that there is always going to be opposition to change. This opposition to change does not mean that the opponents are evil people, or that they have ulterior motives. Usually, the opposition to change is due to the knowledge levels of the opponents at the time. In order to promote the buy-in of the proponents of the status quo into the proposed change, it is imperative for the change agent to make use of empirical evidence and clear communication to make opponents to see the blind spot without making them feel stupid. A classic example of this could be found in Steven Johnson’s The Ghost Map, where John Snow tries to convince the public health leaders and policy makers that cholera was water-borne, rather than transmitted through the air as was the medical belief of the day. To prove his point, John Snow did not immediately challenge the leading health authorities of the day, mocking their ignorance. Rather, John Snow took his time to research the data available on death patterns in his city, as well as painstakingly making use of both quantitative and qualitative methods of research to get answers to difficult questions concerning the epidemiology of cholera. It was only after John Snow had gotten answers to his questions that he went on to publish a journal article documenting his findings. John Snow’s approach was enlightening to me because it is easy to be tempted to be arrogant and cocky when one makes an important discovery that refutes popular belief. Rather, he followed due process and permitted the normal scientific process to allow his findings to become mainstream.

From Richard Preston’s Demon in the Freezer, one of the lessons that stood out to me was from the management perspective. In 1965, the World Health Organization (WHO) wanted to find a way to eradicate smallpox. The WHO recruited the services of D. A. Henderson, who at the time was the head of surveillance at the Center for Disease Control (CDC), to assist in implementing their goal. I believe that among many other factors, one of the reasons that led to the eradication of smallpox was Henderson’s leadership and management style. Many times, people think that the road to significance is largely in isolation. However, this is not true, especially with the fact that it is not efficient for one individual to execute every facet of his/her goal alone. Henderson recognized this, and he developed a ruthlessly efficient system for hiring only the best people and giving them clear goals. As a result, smallpox was declared eradicated in 1980 and the protocol used in achieving this goal still serves as a template for the WHO in the eradication or control of other worldwide epidemics.

Finally, Steven Johnson’s The Ghost Map, as well as Richard Preston’s Demon in the Freezer both showed me how to prospect for innovative ideas. For a long time, I had always thought that innovative ideas came solely from deep thoughts. However, upon reading the two books, I realized that new ideas come by observing the mundane and looking for connections between those mundane observations. Indeed, innovation comes from drawing different conclusions from what everyone else has seen and thought of but did nothing about. This pattern was replicated numerous times in both The Ghost Map and Demon in the Freezer. For instance, John Snow was able to find holes in the miasma theory that foul smells were responsible for causing ailments by simply observing the fact that people whose jobs were to empty full sewers in the city of London were usually very healthy men. If diseases like cholera were transmitted by pungent smells, the sewer workers should have been the weakest. On the flip side, it is also worrying that innovations in the wrong hands can be used to unleash untold mayhem to the world. For instance, there are fears that terrorist organizations are in the process of using genetic engineering principles to modify the smallpox virus into something much more debilitating. In fact, there are valid concerns that future wars might involve the use of biological weapons such as genetically modified viruses and bacteria.

In conclusion, I consider Steven Johnson’s The Ghost Map, as well as Richard Preston’s Demon in the Freezer as two timely books I am glad to have read at this phase of my academic career. I am glad that my mindset concerning the proper way to introduce change, manage teams, and, source for innovation, has been positively expanded. In addition, I have also been made aware of the grave responsibility attached to producing research work of national and international significance.

References

Johnson, S. (2006). The Ghost Map: The Story of London’s Most Terrifying Epidemic–and How It Changed Science, Cities, and The Modern World. Penguin.

Preston, R. (2003). The Demon in the Freezer. Fawcett Books.

In his essay, The Great (Linguistic) Reshuffle, Rahul Sanghi made the compelling case for how there is currently a wealth of innovation and ideas we cannot access because the important conversations are occurring in a language we do not understand.

That, in itself, is a good reason to engage with Sanghi’s piece, yet I was more fascinated by the historical odyssey he took to arrive at that conclusion.

So, we rewind to 15th century Europe and the fall of the Byzantine Empire:

“In 1494, still nursing its wounds from the Hundred Years’ War, Europe found itself caught in a geographical vice grip. To the East, the Ottoman Empire cast a long shadow. Its scimitars still gleamed from the conquest of Constantinople just four decades earlier. The Ottoman Turks represented an overland blockade to the spice-laden lands of the East Indies, choking off the arteries of commerce that had long fed European coffers. To the West, the vast, untamed Atlantic stretched to the horizon and beyond, a liquid wall that had rebuffed explorers for centuries.“

It was within this context that Spain and Portugal emerged as the next European powers. For their part, the Portuguese had spent the better part of 100 years perfecting the art of sea exploration. Leveraging this new skill, they were able to find a route to Asia by going around Africa – effectively bypassing the Ottomans. Lagos in present day Nigeria still goes by the same name these Portuguese explorers had called their trading post in that region back in the late 15th Century (‘Lagos’ = ‘Lakes’ in Portuguese).

On the other hand, Spain as a singular political unit, was born when the Catholic kingdoms of Castile and Aragon on the Iberian Peninsula were unified by the marriage of Isabella I to Ferdinand II. With this consolidation of power also came the colonial desire to find new territories to conquer and expand into. So, when Christopher Columbus came along with the claim that it was possible to reach Asia by sailing West, it didn’t take much convincing for the Spanish monarchy to financially back his travels.

The initial goals of Spain and Portugal had been to find a way around the Ottoman Empire to arrive at Asia. What they discovered in the process, however, were new people, untapped resources and new territories – sub-Saharan Africa, in the case of Portugal, and the Americas, in the case of Spain.

But what was to stop Portugal from turning their attention to the Americas or Spain from doing the same with Africa? The solution was simple:

“Enter Pope Alexander VI, born Rodrigo Borgia in Spain. As head of the Catholic Church, he wielded enormous influence (and as a Spaniard, he was not immune to the politics of his homeland). His solution to stave off the brewing crisis was audacious in its simplicity: a line drawn on a map, running north to south, 100 leagues west of the Cape Verde Islands…Spain received rights to lands west of the line, effectively granting them most of the Americas. Portugal secured an exclusive route around Africa, to the Middle East, India, and beyond.”

To me, this is even more mind bending than the land-splitting that would later play out during Western Europe’s Scramble for Africa in the 19th century. At least, then, there were representatives from Belgium, France, Germany, United Kingdom, Italy, Portugal and Spain negotiating among themselves the borders of their respective colonies. What Pope Alexander VI did, however, is very different. Here we have a single man who was powerful and influential enough to draw a line in a map and literally assign continents to Spain and Portugal!¹

1. Spain and Portugal eventually negotiated directly with each other and moved the original line that Pope Alexander VI had drawn further to the west ↩︎

Kahneman, D. (2013). Thinking, fast and slow. New York, NY: Farrar, Straus and Giroux.

Introduction

1. Accurate intuition of experts is usually the result of prolonged practice, rather than a reliance on heuristics
2. Herbert Simon quote: “The situation has provided a cue. This cue has given the expert access to information stored in the memory and the information provided the answer. Intuition is nothing more and nothing less than recognition”
3. Valid intuition happens when experts have learned to recognize familiar cues in situations and act out in the appropriate manner
4. Without experience, intuition is likely to be inaccurate
5. Humans, when faced with a difficult question, use heuristics to answer a simpler question

PART 1

Chapter 1

1. Mental work is usually deliberate, orderly and effortful (System 2)
2. System 1 is fast and automatic while System 2 is orderly
3. System 1 is instinctive (similar behavior in lower animals) while System 2 requires attention and is disrupted when attention is denied
4. Intense focus (effortful System 2) affects attention to other stimuli, e.g., the Gorilla Experiment
5. System 1 generates impression while System 2 turns these impressions, intuitions and intentions into beliefs
6. System 2 arises when one’s mental model of the world is violated/unexpected. It also helps self-motivating behavior
7. System 1 is susceptible to biases. It is impulsive, while System 2 is responsible for self-control
8. Muller-Lyer illusion – Interesting how the visual illusion is still perceived as an illusion (System 1) – even though System 2 knows the reality

Chapter 2

1. System 2 is lazy and there is a reluctance to apply effort to get it to function
2. Eckhard Hess quote: “The pupil of the eye is the window to the soul”
3. Pupils dilate in mental effort and stop when the individual resolves the task or gives up
4. Mundane conversation (a System 2 task) is conducted at a comfortable pace which is preferred by System 2
5. During intense mental activity, System 2 focuses the bulk of the attention of the task while allotting lesser levels of attention to less important tasks
6. With increase in skill and proficiency, demand for attention reduces and System 2 is able to return to its preferred pedestrian rate
7. Law of Least Effort: If there are several ways to attain a goal, most people prefer the easiest route
8. More effort is placed on System 2 whenever the individual is under time pressure

Chapter 3

1. System 2 likes to work at a pedestrian rate and when a demand is placed on it, less attention is devoted to other tasks which are taken over by the more impulsive System 1
2. Anything that places more demand on System 2 will allow System 1 to take over
3. Ego depletion: After using System 2 on Task A, one is not willing to use System 2 again on Task B. Note that ego depletion is not cognitive busyness. The former can be increased with the right incentives while in the latter, using short term memory cannot be incentivized to improve performance
4. People with active minds do not allow System 1 to take over the “bat and ball” problem, while those with a lazy System 2 accept System 1’s intuition
5. If people believe a conclusion, they also accept the supporting arguments, even if they are wrong. All these are a waste of a lazy System 2
6. Intelligence is not just the ability to reason, but the ability to recall relevant material in the memory an deploy attention as needed (System 2’s task)

Chapter 4

1. Associative activation: When an idea triggers other ideas in the brain. For instance, seeing “banana” and “vomit” brought up memories of similar events in the past and also prepares one for future possible events that have now become subjectively more likely
2. Embodied cognition: You think with the body and brain
3. Despite multiple ideas being activated in the mind, only a few register in to one’s consciousness
4. Priming is an example of determinism (behaviorism perspective)
5. System 2 thinks it’s in charge and it knows the reason for action. Priming phenomenon triggers associative activation that influences System 1 (intuitive, impulsive “dark matter”) and System 2 has no access to them. [Note: Studies on priming have replicated poorly in recent years]
6. System 1 provides impressions that turn to beliefs, impulses that turn into choices and actions. It triggers associative activation that links the past, present and future expectations

Chapter 5

1. System 2 enjoys cognitive ease. In the event of cognitive strain, System 1 mobilizes System 2. Cognitive strain occurs when effort is needed and there are unmet demands
2. Cognitive ease usually facilitates creativity as System 2 is not under stress. Cognitive strain, on the other hand, promotes the activity of System 2 – however this compromises intuition and creativity
3. Greater cognitive ease is experienced when stimuli that have been seen before are seen again. The cognitive ease is triggered by the feeling of familiarity. The way the stimuli is presented influences the degree of cognitive ease that is experienced
4. The impression of familiarity is produced by System 1 and System 2 makes judgement based on that impression
5. Repeating falsehood reduces cognitive ease and System 2 assimilates that as belief 
6. Persuasive stimuli in the form of messages should be

• Legible
• Use simple language
• Memorable (rhymes are good)
• Names that are easy to pronounce

7. Most people are guided by System 1 and not know where their impressions come from
8. Cognitive ease is associated with good feelings (System 1)
9. Mere Exposure Effect: Repetition of stimuli promotes cognitive ease which in turn is likely to produce positive emotions (System 1)
10. Happy mood reduces the control of System 1 on performance

Chapter 6

1. System 1 maintains and updates your model of the world
2. Your model is made up of associated ideas that determine your interpretation of the present, as well as your expectations
3. Norm Theory: Very little repetition is needed for a new experience to be deemed normal. We have norms for different categories and these norms provide background for the detection of anomalies
4. System 1 tries to identify cause and effect automatically while System 2 accepts the explanation

Chapter 7

1. When uncertain, System 1 bets on an answer and the bets are guided by experience
2. System 1 does not keep track of alternatives, while doubt requires mental effort (a function of System 2)
3. To understand a statement, you have to know what the idea means if it is true.
4. When System 2 is busy, we tend to believe almost anything 
5. Confirmation bias: People tend to look for data that is compatible with beliefs they currently hold
6. Halo Effect: Tendency to like (or dislike) everything about a person (including things that have not been observed)
7. Information that is not retrieved might as well be non-existent. System 1 constructs the best possible story that incorporates ideas activated and not those inactivated
8. System 1’s mantra is “What You See Is What You Get (WYSIWYG)”
9. Knowing little makes it easy to fit everything that one knows into a coherent pattern
10. Overconfidence: Not allowing for the possibility that evidence critical to judgement is missing
11. Framing Effect: Different ways of presenting the same information evokes different emotions (and responses)
12. Base-rate neglect: Forgetting the denominator of the population you are interested in

Chapter 8

1. System 2 receives questions or generates them: It does this by directing attention and searching the memory for answers
2. System 1 continually generates assessment of a situation without focusing on a specific intention or using up effort
3. System 1 substitutes one judgement (a hard one) with another (usually a simpler one)
4. For System 1, good moods and cognitive ease are indicative of safety and familiarity
5. System 1 also functions in providing rapid judgement in determining whether a person is a friend or foe. People sometimes use this in determining who to vote for
6. Basic assessments automatically done by System 1 during language use include:

• Computation of similarity and representativeness
• Attribution of causality
• Evaluation of the availability of association and exemplars

7. System 1 represents categories by a prototype/exemplar and can do well with averages, but not sums (An example is people choosing to donate the same amount to save 2000, 20000 or 20000 birds)
8. System 1 has two categories of assessment: 

• Continuous routine assessments (e.g., seeing the shape of objects in 3d)
• Voluntary assessments (e.g., assessing how happy you are)

9. System 1 also does intensity matching

Chapter 9

1. People’s normal disposition is to have an intuitive feeling/opinion about everything that comes one’s way
2. People tend to have answers to questions they do not understand completely, and they do this by relying on evidence they can neither explain nor defend
3. System 1 replaces a hard question with an easier one. This is called substitution
4. Heuristic: This is a simple procedure that helps find adequate, though imperfect answers to difficult questions
5. Mental shotgun refers to the tendency to compute more than necessary/intended, e.g., replacing hard questions with an easier one
6. Intensity matching: Automatically creating scales of intensity of emotions to judge something
7. A judgement that is based on a substitution will invariably be biased
8. Affect heuristic: People allowing their likes and dislikes to determine their beliefs about the world
9. Self-criticism is one of the functions of System 2, however, when it comes to affect (emotions), its search for emotions is constrained to the information that is consistent with existing beliefs

PART II

Chapter 10

1. System 1 likes to make causal connections, even when those connections are not there
2. A random event doesn’t have an explanation. But a collection of random events may behave in a regular fashion
3. System 1 will produce representations of reality that makes sense (often basing this on the Halo Effect, as well as the assumption that the Law of Large Numbers work for small samples 
4. System 1 likes looking for causal relationships when in the real sense, nothing in particular causes an event to happen – chance selects it from a series of alternatives
5. Random processes produce many sequences that convince people that the process is not random after all
6. We pay more attention to the content of a message, rather than their reliability. As a result, we end up with a view of the world that is simpler than what the data can justify

Chapter 11

1. Two forms of anchoring:

• One that occurs in the process of adjustment (System 1)
• One that occurs due to the priming effect (System 2)

2. In System 2, anchoring is a deliberate attempt to find reasons to move away from the anchor
3. People adjust less when their memory resources are depleted
4. In System 1, anchoring could occur with no corresponding subjective experience
5. System 1 tries to conduct a world where the anchor is a true number. It does this via associative coherence, where any prime will evoke information compatible with it
6. Searching for arguments against the anchor is useful during negotiations and is controlled by System 2
7. Anchoring occurs when one is unconscious (in the case of priming) and it also occurs when you are aware because you can no longer imagine how you would have thought in the absence of the anchor

Chapter 12

1. Availability heuristic: Judging frequency by the ease with which instances come to mind
2. Availability heuristic replaces “size or frequency of event” with “how easily can I recall this instance”
3. Make efforts to reconsider your impressions by asking “Am I believing this because of recent events?”
4. Self-assessment is dominated by the ease with which certain examples come to mind
5. The proof that you truly understand a pattern of behavior is that you know how to reverse it
6. When people find that fluency (i.e., ability to recall the instance of an event) is worse, they doubt the frequency of the event was as high as they initially thought
7. Judgements are no longer influenced by ease of retrieval if the difficulty of recall is attributed to other random/false explanations
8. System 1 sets expectations and is surprised when those expectations are violated
9. System 2 can reset the expectations of System 1 so that events that used to be surprising to System 1 are no longer surprising

Chapter 13

1. Our expectation about the frequency of an event is distorted by the prevalence and the emotional intensity of the messages to which we are exposed
2. Affect heuristic: Simple question of “How do I feel about it?” replaces the more difficult question “What do I think about it?”
3. The availability cascade: When bias flows into policy. The importance of an idea is judged by the fluency and the emotional charge of the idea that comes to mind
4. The mind has limited abilities to deal with small risks: We either ignore them totally or give them too much weight. Nothing in-between
5. Probability neglect: Exaggerating ease of recalling disaster, but ignoring their frequency in the grand scheme of things

Chapter 14

1. Base rates: The denominator 
2. Questions about probabilities trigger shotguns that cause us to answer a simpler question
3. Representativeness bias: using stereotype characteristics of a group to make decisions about an individual without considerations about base rates
4. Enhanced activation of System 2 reduces representative heuristic
5. Two factors cause System 2 to fail: ignorance and laziness
6. When you have doubts about the quality of an evidence; let your judgement of probability stay close to the base rate
7. Bayesian statistics helps with base rate calculations. 
8. Keys to Bayesian reasoning:

• Anchor judgements on a plausible base rate
• Question the diagnosticity of your evidence (is it valid? Is it measuring what it should?)

Chapter 15

1. Conjunction fallacy: People judge a conjunction of 2 events (A and B) to be more probable than one of the event (A) in direct comparison
2. Representative outcomes combine personality description to produce coherent stories which are not necessarily the most probable, but most plausible
3. Large sets are values more than smaller sets in joint evaluation but less in single evaluations

Chapter 16

1. Two types of base rates:

• Statistical base rates: Facts about a population to which a case belongs; not relevant to individual case
• Causal base rates: Changes views about how the individual case came to be

2. System 1 represents categories as norms
3. Neglecting valid stereotypes may result in suboptimal judgements
4. Inferences drawn from causal base rates include:

• Stereotypical trait
• Feature of a situation that affects an individual’s outcome

5. People do not draw from base-rate information an inference that conflicts with their other beliefs
6. Nisbett & Burgida (1975): People feel relieved of responsibility when they know others have heard the same request for help
7. In the absence of any useful information, the Bayesian solution is to stay with the base rates
8. People exempt themselves from the experimental conclusions that surprise them
9. People are naturally unwilling to reduce the particular from the general but they are willing to infer the general from the particular (Nisbett & Burgida, 1975)
10. The test of learning psychology is not whether you have learned a new fact, but whether your understanding of situations have changed

Chapter 17

1. The more extreme the original score, the more regression we expect, because an extremely good score suggests a very lucky day
2. Whenever correlation between 2 scores are imperfect, there will be regression to the mean
3. System 2 finds the relationship between correlation and regression difficult to understand and learn partly because of System 1’s desire to find causal interpretations

Chapter 18

1. Intuitive predictions are insensitive to actual predictive quality of evidence
2. When people are asked for prediction, they replace the question with one about evaluation of evidence
3. Intuitive predictions need to be corrected because they are not regressive and are therefore blind

Chapter 19

1. Narrative fallacy: Flawed stories about the past shape views of the world and of the future
2. The human mind does not deal with nonevents. We tend to exaggerate the role of skill and underestimate the part that luck played in the outcome
3. People build the best possible story from the information available to them. And if it is a good story, they believe it
4. People have an unlimited ability to ignore their ignorance
5. We understand the past less than we believe we do
6. Once you have a new view of the world, you forget what you used to believe before your mind changed
7. Hindsight bias: The tendency to revise the history of one’s beliefs in the light of what actually happened
8. We blame decision makers for good decisions that worked out badly and give them little credit when good decisions turn out good
9. The worse the consequence, the greater the hindsight bias
10. The illusion that one understood the past feeds the further illusion that one can predict and control the future

Chapter 20

1. Confidence is a feeling which reflects the coherence of the information and the cognitive ease of processing it
2. People ignore base rate information when it clashes with their personal impressions from experience
3. The illusion that we understand the past fosters overconfidence in our ability to predict the future
4. We think we are able to explain the past by focusing on social movements, technological developments and the abilities of certain great men. Not true.
5. Errors of prediction are inevitable because their world is unpredictable
6. High subjective confidence (System 1) should not be trusted as an indicator of accuracy
7. Short-term trends can be forecast and behaviors can be predicted with fair accuracy from previous behaviors. But behavior in tests and in the real world are determined by context-specific factors

Chapter 21

1. Domains with significant degree of uncertainty and unpredictability are called “low-validity environments”. In these environments, accuracy of experts was matched or even exceeded by a simple algorithm
2. Sometimes, complexity reduces validity and many times, experts introduce unnecessary complications
3. Additionally, humans find it difficult to make consistent decisions. When provided with the same information, humans will give conflicting answers
4. Decisions are context-dependent (System 1)
5. Slight changes in context can impact decisions greatly
6. When predictability is poor, inconsistency is destructive
7. To maximize predictive accuracy, final decisions should be left to formulas, especially in low-validity environments [Note: Building from first-principles]
8. Intuition adds value after a disciplined collection of objective information via algorithms

Chapter 22

1. In his book, Sources of Power, Gary Klein posited that experts do not limit their options to a pair. Rather, they draw from a repertoire of patterns (System 1’s associative memory) and mentally simulate different options (System 2)
2. The situation has provided a cue (discriminative stimuli); the cue has given the expert access to information stored in the memory (repertoire) and the information provides an answer. Intuition is nothing more and nothing less than recognition [Kahneman’s twist to Simon’s quote earlier in the book]
3. Acquiring expertise in a difficult skill is harder and slower than learning to read because hard skill usually consists of more “letters” in the “alphabet” and the “words” contain more “letters”
4. How skill is developed

• An environment that is regular to be predictable
• An opportunity to learn these regularities through prolonged practice

5. Intuitions cannot be trusted in the absence of stable regularities in the environment
6. Whether professionals gave a chance to develop intuitive expertise depends on the quality and speed of feedback, as well as the sufficient opportunity to practice
7. If the environment is regular and the decisionmaker has had a chance to learn its regularities, the associative machinery will recognize situations and generate quick and accurate predictions
8. Klein summarized all these in the Recognition-Primed Decision (RPD) model

Chapter 23

1. Inside view vs Outside view. People who have information about an individual case (inside view) are reluctant to know the statistics of the class to which the case belongs (outside vide)
2. Planning fallacy: A focus on unrealistic best-case scenarios which could be improved by consulting statistic on similar cases
3. Taking the outside view is the cure for the planning fallacy

Chapter 24

1. People who have the greatest influence on the lives of others are likely to be optimistic and overconfident and to take more risks than they realize
2. An optimistic temperance encourages persistence in the face of obstacles
3. People may achieve higher average returns by selling their skills to employees than by setting out on their own
4. Hubris hypothesis: Executives of an acquiring firm are less competent than they think they are
5. Overconfidence: In estimating a quantity, choosing to rely on information that easily comes to mind and constructing a coherent story around it that makes sense
6. Inadequate appreciation of the uncertainty of the environment leads economic agents to take risks that they should avoid
7. An appreciation of uncertainty is a cornerstone of rationality
8. The premortem is a partial remedy for overconfident optimism

Chapter 25

1. People are neither fully rational nor completely selfish and their stakes are anything but stable
2. Gambles represent the fact that consequences of choices are never certain
3. Bernoulli’s theory did not consider reference points

Chapter 26 – Prospect Theory

1. In the utility theory, the utility of gains and losses are allowed to only differ in their signs (+ or -). There is no way to represent the fact that the disutility of losing $500 could be greater than the utility of winning the same amount – though, of course it is.
2. One’s attitude to gains and losses does not arise from an evaluation of one’s wealth. Rather, people simply prefer winning to losing and dislike losing more than winning
3. The missing variable in Bernoulli’s model was the reference point – the earlier state relative to which gains or losses are evaluated
4. The 3 cognitive features of the Prospect Theory include:

• Neutral reference point, also called the adaptation level
• Principle of diminishing sensitivity
• Loss aversion – treating threats more than opportunities facilitate survival (evolutionary framework)

5. In mixed gambles, where both a gain and a loss are possible, loss aversion causes extremely risk-averse choices. In bad scenarios where a sure loss is compared to a larger loss that is probable, diminishing sensitivity causes risk seeking
6. Criticism of prospect theory – It cannot account for disappointment and regret.

Chapter 27

1. The indifference curves assume that utility is determined by the present situation
2. The standard utility theory also assumes that preferences are stable over time (i.e., points on the indifference curve will provide the same utility over time). On the other hand, prospect theory asserts that people on points in an indifference curve will eventually prefer the status quo
3. Indifference curves do not predict two things:

• Tastes are not fixed
• The disadvantages of a change loom larger than its advantages, consequently inducing a bias that favors the status quo

4. Utility theory proposes that your utility for a state of affairs depend on that state and not on your history
5. Endowment effect: Willingness to buy or sell is dependent on reference point. If the item is owned, one considers the pain of giving it up. If the item is not owned, one considers the pleasure of owning it
6. Experienced traders ignore the endowment effect. They have learned to ask the right question: “How much do I want X, compared to other things I could have instead?”
7. In prospect theory, being poor is living below one’s reference point. They are always in losses

Chapter 28

1. The amygdala is activated in response to threats
2. In many situations, the boundary between bad and good is a reference point that changes over time and depends on immediate circumstances
3. One of the ways negativity dominance is expressed is loss aversion

Chapter 29

1. When you form a global evaluation of a complex subject, you assign weights to its characteristics. Some characteristics influence your assessments more than others do.
2. The more probable an outcome, the more weight it should have. The expected value of a gamble is the average of its outcomes, each weighted by its probability. This is the expectancy principle
3. Possibility effect: Highly unlikely outcomes are weighted more disproportionately than they deserve
4. Certainty effect: Outcomes that are almost certain are given less weight than their probabilities justify
5. Contrary to the expectation principle, the decision weights that people assign to outcomes are not identical to the probabilities of those outcomes.
6. People attach values to gains and losses, rather than to wealth and decision weights they assign to outcomes are different from probabilities
7. Diminishing sensitivity makes the sure loss more aversive and the certainty effect makes the gamble less aversive. In the same vein, when outcomes are positive, the sure thing is more attractive, while the gamble is less attractive
8. Paying a premium to avoid a small risk of a large loss is costly

Chapter 30

1. People overestimate the probabilities of unlikely events, and they overweigh the unlikely events in their decisions. This is because of cognitive ease, focused attention and confirmation bias
2. A rich and vivid representation of outcome reduces the role of probability in the evaluation of an uncertain prospect
3. Denominator neglect: A focus on the numerator but not the denominator
4. Low probability events are more heavily weighed when described in weighted frequencies rather than in abstract terms

Chapter 31

1. People tend to be risk averse in the domain of gains and risk seeking in the domains of loss
2. Every simple choice formulated in terms of gains and losses can be deconstructed in innumerable ways into a combination of choices, yielding preferences that are likely to be inconsistent
3. It is costly to be risk averse for gains and risk seeking for losses. This makes you more liable to pay a premium to obtain a sure gain rather than face a gamble, and also willing to pay a premium to obtain a sure loss
4. People consider decisions in two main kinds of frames:

• Narrow framing, which is a sequence of two simple decisions considered separately
• Broad framing, which is a single comprehensive decision with 4 options

5. Deliberate avoidance of exposure to short-term outcomes improves the quality of both decisions and outcomes

Chapter 32

1. Disposition effect: People sell winners rather than losers. 
2. The rational behavior would be to sell the stock that is less likely to do well in the future
3. An argument against seeking winners is that stocks that have recently gained in value are more likely to go on gaining for a short while
4. Sunk cost error: The decision to continue investing in a losing account when better investments are available
5. Intense regret is what you experience when you can most easily imagine yourself doing something other than what you did
6. People expect to have stronger emotional reactions (including regret) to an outcome that is produced by action than to the same outcome when it is produced by inaction
7. The taboo tradeoff against accepting any increase in risk is not an efficient way to use the safety budget

Chapter 33

1. Preference reversal occurs because joint evaluation focuses attention on an aspect of the situation which is less salient in a single evaluation
2. Judgement and preference are coherent within categories but potentially incoherent when the objects evaluated belong to different categories

Chapter 34

1. For Econs, the objects of their choice are states of the world which are not affected by the words used to describe them
2. Amygdala – Emotional arousal functions. Active when the choice conforms to the frame
3. Anterior cingulate – Conflict and self-control. Active when one doesn’t do what comes naturally
4. Frontal area – Combines emotions and reasoning to guide decision making
5. Decision makers tend to prefer the sure thing over the gamble when outcomes are good and reject the sure thing and accept the gamble when outcomes are negative
6. Broader frames and inconclusive accounts generally lead to more rational decisions

Chapter 35

1. Peak end rule: Global retrospective rating is predicted by average level of pain at the worst moment of the experience and at the end
2. Duration neglect: The duration of a procedure has no effect on the total ratings of the total pain
3. Experiencing self is different from the Remembering self. Memories are all we keep from our experience of living and the only perspective we can adopt as we think about our lives is that of the remembering self
4. The memory that the remembering self keeps is a representative moment influenced by the peak and the end

Chapter 36

1. The Remembering self composes stories and keeps them for future reference

Chapter 37

1. The easiest way to increase happiness is to control your use of time

Chapter 38

1. Affective forecasting: The belief that the rate of X is high, but the statistics do not apply to one
2. Mood heuristic is one way people answer the life satisfaction question
3. The score one assigns to one’s life is determined by a small sample of highly available ideas and not a careful weighting of all domains of one’s life
4. A hybrid view of both the Experiencing and Remembering selves should be considered in defining happiness
5. Focusing illusion: Nothing in life is as important as you think it is when you are thinking about it
6. The Remembering self is subject to massive focusing illusions about life that the experiencing self endures quite comfortably
7. Miswanting: Bad choices arise from errors of affective forecasting.

Conclusion

1. “And of course you also remember that the two systems do not really exist in the brain or anywhere else. “System 1 does X” is a shortcut for “X occurs automatically.” And “System 2 is mobilized to do Y” is a shortcut for “arousal increases, pupils dilate, attention is focused, and activity Y is performed.”

Bickel, W. K., & Marsch, L. A. (2000). The tyranny of small decisions: Origins, outcomes, and proposed solutions. Reframing health behavior change with behavioral economics, 341-391.

1. ‘Tyranny of Small Decisions’ was inspired by Alfred Kahn’s (1966) use in describing consumers’ choice whereby individual acts of consumption, when viewed as an aggregate would not be preferred by the decision maker
2. Bickel and Marsh use the term ‘Tyranny of Small Decisions’ to describe how individuals suffer because of a narrow temporal outlook on life. They argue that an individual’s narrow or broad temporal context is determined by their environmental context

Behavioral economic principles that influence one’s temporal horizon

1. Availability of reinforcers – This can be reduced by:
   • Decreasing the magnitude of the reinforcer
   • Increasing the price, effort or response cost to acquire the reinforcer
   • Decrease the probability of acquiring the reinforcer (i.e., make it less predictable)
   • Delay the delivery of acquiring the reinforcer
   • Increasing sanctions or punishments for acquiring the reinforcer

2. Competing reinforcers – When competing alternatives are immediately available, they reduce the time or effort allocated to the initial reinforcer.

Small Decisions: Origins, Decline & Resurgence

1. In addition to incorporating new information from the environment through learning, humans are also able to acquire information through accumulated knowledge obtained from culture.
2. Whatever similarities between humans and nonhumans are coded in the genes, whatever is not shared was likely acquired via acculturation
3. It is likely that the extent to which a human discounts the future is a function of cultural contingencies

The beginning and its end

1. Hunting and gathering is consistent with a narrow temporal horizon since both activities are opportunistic and when found, reinforcers (meat and grains) are immediately available
2. In agricultural societies, people had to plan ahead by planting seeds today to reap a harvest tomorrow
3. Hunter-gathering is neither labor-intensive (Lee, 1968, 1979), nor likely to cause poor individual health (Cashdan, 1989; Hansen, 1976). The individuals in agricultural societies had shorter lives and were less healthy (Cohen, 1977). Besides, farming was more labor-intensive
4. Factors leading to a transition from hunter-gatherer to agricultural societies (Diamond, 1997)
   • Decreased local availability of wild food
   • Increased availability of domesticated plants
   • Cumulative development of technologies through a Lamarckian cultural mechanism where knowledge can be passed on to the next generation
   • Positive feedback mechanism between food production and labor, rendering hunting-gathering as a less attractive proposition
5. In short, a long temporal horizon developed because of a reduction in environmental resources that could support a narrow temporal horizon
6. The development of writing also facilitated the transmission of information even more efficiently. This occurred in the agricultural societies, rather than the hunting-gathering ones.

Time’s Cycle and Time’s Arrow

1. In ancient civilizations, time was deemed cyclical, implying changelessness and continuity. Whitrow (1989) reported that ancient Egyptians marked time with the ascension of a new Pharaoh
2. Concerning the Greeks, Whitrow (1989) noted that they were backward looking because certainty could only be found in the past, while the future was filled with uncertainty
3. With Christianity, Whitrow (1989), noted a shift in how time was perceived. Instead, history and the future were seen as the unfolding of God’s purposes. In this worldview, people can be saved now to partake in the future Kingdom of God
4. According to Stark (1997), Christianity’s temporal worldview developed due to:
   • Christianity moved away from Jerusalem which already housed Judaism with a similar set of beliefs
   • Christians’ behavior in traumatic times, such as caring for the sick during epidemics when other religions abandoned the ill. Christians were motivated by the temporally distal reward of eternity in heaven
   • Christianity’s tendency to provide a social safety net by providing for the less privileged

Modern Times

1. Factors such as consumerism, reduced civic participation, as well as increased isolation is reducing the temporal horizon
2. O’Malley (1990) – ‘Preindustrial societies enjoyed less of a distinction between work and leisure…They intermingled constantly in the course of living. A […] farmer, finishing one task, went straight to work on another, and even at rest, the farmer remained a farmer, there was relatively little sense of ‘time off’
3. Clocks spread into life through industrialization whereby factory work divided work time from leisure time
4. Wage earners started enjoying free time which soon became commercialized. This invariably led to a less restrictive culture with moral relativism where sanctions and punishment for a short time horizon were lifted
5. Time spent on the internet [TV is the dated example used in the book] has a low cost and immediate availability. This competes with other social relationships which eventually lead to less concern about others. This may be self-reinforcing, especially when a lack of concern for others lead to spending more time on the internet

The Culture of Poverty

1. Lewis (1966) – “The culture of poverty is not just a matter of deprivation or disorganization, a term signifying the absence of something. It is a culture in the traditional anthropological sense in that it provides human beings with a design for living, with a ready-made set of solutions for human problems, and so serves a significant adaptive function…Wherever it occurs, its practitioners exhibit remarkable similarity in the structure of their families, in interpersonal relations, in spending habits, in value systems, and in their orientation in time”
2. Environments containing a high prevalence of risk and uncertainty, as well as an isolation from mediating structures such as family, neighborhood or religion have been characterized by the prevalence of short-term behaviors
3. When instability is the norm, it may not be in the interest of the individual to behave in a way that shapes the future, especially when the future is not certain

The Relation Between Deviant Behavior and Short Temporal Horizons

1. F.T. Melges (Time and the Inner Future, 1982): “Time is both a medium and a perspective. It is a medium through which we live as the future becomes present. As the future becomes present, we become aware of duration and succession. Also, by transcending the present and looking at it from the past or future, we gain perspective on the present. These time processes are fundamental to our construction of reality. If they are disturbed, our view of reality may become distorted”
2. Alcoholics have a shorter sense of awareness (i.e., a short Future Time Perspective [FTP]) and were shown to have a less coherent organization of future events (Murphy & DeWolfe, 1986)

Proposed Solutions/Policy Implications

How can cultural changes be imposed in a way that is self-reinforcing?

• Provide incentives to attend self-control trainings
• Long-term coaching
• Constant surveillance (e.g., by families, communities, religious organizations, etc.) with predictable contingencies
• Resolve sources of environmental instability

The French philosopher, Rene Girard, is known for popularizing the idea of mimesis or mimetic desire.

According to Girard, people do not know what to desire. Instead, they get their idea of what is valuable by looking at others.

For instance, someone may desire a designer bag because they saw a cool model flaunting the said bag in a YouTube ad. Another person might want to become a medical doctor because they watched Ellen Pompeo convincingly portray the character of Dr. Meredith Grey on ABC’s Grey’s Anatomy. In both cases, desire is socially mediated rather than arising from individuals’ rational deliberations and cost-benefit analyses.

Girard intuited that the ability of a model to inspire imitation is tied to the physical and/or psychological distance between the desiring subject and the model.

The model oozing charisma and coolness to sell designer bags in an ad will probably not have the same effect on her family and friends who frequently see her goofy side. It’s possibly the same reason why people lose respect for their role models when they get up close and personal with them. The aura fades away and the imperfections come to the fore.

This is also something that plays out a lot on social media. Nowadays, phones and internet access aren’t things that only the rich and elite enjoy. Even people from economically disadvantaged countries are active on social media. Yet, social media is a cesspool precisely because it has made physical distance irrelevant. If he were alive today, I think Girard would say that access to smart phones and high-speed internet has made us equals. And because we’re now equals, even small differences between us loom larger in our minds – leading to conflicts, rivalries and cycles of toxicity that characterize social media as we know it today.

Some days ago, I happened upon Adam Mastroianni’s piece about US Democrats and Republicans. The following stood out to me (emphasis mine):

“But here’s something funny—according to a bunch of recent research, Democrats and Republicans don’t seem to know who they’re hating. For example, Democrats underestimate the number of Republicans who think that sexism exists and that immigration can be good. In return, Republicans overestimate how many Democrats think that the US should have open borders and adopt socialism. Both parties think they’re more polarized than they actually are. And majority of both sides basically say, “I love democracy, I think it’s great,” and then they also say, “The other party does NOT love democracy, they think it’s bad.”

In other words, Democrats and Republicans are much more similar than they think. Yet, they fixate on their differences.

However, US Democrats and Republicans are not the only ones who do this.

I am currently reading through Apostle Paul’s first letter to the early Corinthian church. I’m amazed at how tribal they also seemed to be. Members of the Corinthian church likely lived in the same city. They probably also had the same ethnicity. And, at the very least, they shared the same faith in Jesus. Yet, for all their similarities, these church folk chose to create factions based on something as mundane as who had baptized them. Instead of just being Christians, they wanted to be Paulians, Apollians and Peterians!

So, why do we humans have a tendency to be tribal?

In psychology, there’s a decision-making heuristic called the isolation effect (p. 271). When people have the opportunity to choose between two options, they develop a kind of selective blindness to what those options have in common. For instance, when you go to a supermarket for cereal or toothpaste, the similarities between the brands fade away from your consciousness and their differences stand out. Perhaps the very same process is hijacked when we’re deciding on where to pitch our tents ideologically.

In his September 2024 essay, ‘The Subprime AI Crisis’, Edward Zitron said the following (emphasis mine):

“I am deeply concerned that this entire industry is built on sand. Large Language Models at the scale of ChatGPT, Claude, Gemini and Llama are unsustainable, and do not appear to have a path to profitability due to the compute-intensive nature of generative AI. Training them necessitates spending hundreds of millions — if not billions — of dollars, and requires such a large amount of training data that these companies have effectively stolen from millions of artists and writers and hoped they’d get away with it…My concern is that I believe we’re in the midst of a subprime AI crisis, where thousands of companies have integrated generative AI at prices that are far from stable, and even further from profitable.“

For people who use ChatGPT, Claude and/or Gemini, what would you do if the subscription prices of these LLMs became so prohibitive?

Where would you draw the line and opt out? $30/month? $100? $500? Never even bought a subscription to start with?

Everyone is riding the AI wave. Yet, no matter how high the waves rise, there’s always a non-zero probability that they will come crashing down at some point.

So, how should you protect yourself? Cultivate these two things: (1) domain expertise, (2) taste.

Here’s the thing: LLMs might be better and faster than humans at prediction and pattern recognition. But when it comes to making judgments about what should be valued, we humans really shine.

Unfortunately, without domain expertise and a cultivated taste for what is good, your value judgements are essentially useless.

As it stands, we humans are not born with domain expertise. And the only things we are biologically hardwired to taste are sweet, bitter, sour and salty, not ideas and insight. Moreso, no one develops domain expertise by osmosis, neither can anybody cultivate taste just by having someone else lay hands on our heads.

Both domain expertise and taste must be earned via blood and sweat and tears and time.

Which is why it is never a bad idea to read the classics. Read within your field. Read outside your field. Have conversations with different people. Travel widely as you’re able to. Build things. Start projects. Cultivate new experiences. Do something tangible in the real, physical world. Write about your learnings and share them.

When you do these things, you just might cultivate the domain expertise and taste that will make you indispensable both during the current LLM boom and in the post-Gen AI world.

I’m on the same journey with you. And that’s one other reason I have made the recommitment to share my unpolished thoughts more.

Whenever I feel I have something to say, my typical process is to re-read book(s) or article(s) on the topic, make private notes, and keep them away in my Evernote folder until I’m ready to bang out a full-fledged essay (or book).

Recently, however, I made a recommitment to go in a different direction.

I want to start sharing more of my unpolished musings.

This step is inspired, at least in part, by the public, semi-personal log pages maintained by Becky Isjwara and Michael Dean on their respective websites.

After seeing what Becky and Michael have going, I felt I finally had the permission to share many of the various stuff I had been reading or thinking about but did not feel ready to give the full essay treatment just yet.

That is, in a nutshell, what I will be doing moving forward in this space.

P.S.:

For those who don’t know me too well, I am a PhD-level researcher and founder of ‘PROMISE Labs Africa’, a scientific non-profit (more on that soon). With a background like that, you will see me sharing my notes from consuming research. At the same time, I’m also a Bible-believing, spirit-filled Christian and you can expect to see Christian/Biblical themes reflected in my writing. Finally, you will also see me share notes from history and philosophy because, as the writer of Ecclesiastes mused nearly three millennia ago, there is nothing new under the sun.

As you can tell, my interests are quite eclectic. But at the center of everything, I am trying to answer two questions: (1) Why do we act the way we do? (2) How can we do better?

Herrnstein, R. J. (1990). Rational choice theory: Necessary but not sufficient. American Psychologist, 45(3), 356.

1. The theory of rational choice is normatively useful, but fundamentally insufficient as an account of behavior
2. Rational choice theory holds that organisms strive to maximize total utility (behaviorally, this is reinforcement)
3. Utility cannot be observed directly but must be inferred by observing choice behavior
4. Rational Choice Theory provides a rule for inferring utility: Utility maximization is simply what organisms are doing when they behave, subject to certain constraints
5. Most disciplines dealing with behavior rely on the idea that humans and other organisms maximize utility according to the axioms of the rational choice theory 
6. Rational choice theory evolved to also try to explain irrational behavior not guided by self-interest. This is possible because subjective utility differs from objective value. As a result, maximizing subjective utility may lead to irrational behaviors, such as overeating, alcohol and drug abuse, as well as overspending, which leads to undesirable consequences like obesity, addiction and debt. In this context, rationality is revealed preference
7. Like utility, rational choice theory also posits that the probabilities by which value is discounted by uncertainty is also subjective. Hence people worry and overpay to avoid low-probability events, but ignore high probability events
8. Subjectivity of utility is motivational, while that of probability is cognitive
9. Why rational choice theory continues to survive:
   • It aligns with common sense in simple settings. For instance, FI-5 is better than FI-10 every time¹
   • The axiomatic formalization of the theory are elegant and this has a great appeal to theories
10. If discounting is rational, the rate should be fixed per unit time
11. According to the matching law, behavior is distributed across alternatives so as to equalize the reinforcements per unit of behavior invested in each alternative. That is, the proportion of behavior allocated to each alternative tends to match the proportion of reinforcement received from that alternative
12. Experiment described in Herrnstein & Prelec (1989):
    • Subject presented with concurrent schedules of reinforcement² (a few cents whenever response key was depressed after the trial light was illuminated)
    • Each trial separated by intertrial interval (t + C)
    • Intertrial interval for Key-1 (A) was 2 seconds shorter than that following the choice of the other Key-2 (B). So, delay for A = t – 2 + C; delay for B = t + C; because the intertrial interval for either choice was a linear function of the proportion of A chosen in the preceding 10 trials. So, if A was chosen continually (impulsive choice), delay to both A & B would both be increased. However, if B was chosen consistently, delay to A & B would remain the same!
    • Optimal “rational” strategy = choose B all the time. Most people did not do this. In fact, some subjects exclusively chose A!
    • Subjects know their choices are influencing intertrial interval, but do not know what to make of that information.
13. Organisms allocate more behavior to alternatives that provide higher rates of reinforcement. This is referred to as melioration
14. Although melioration is commonsensical; however, it does not maximize reinforcement and it leads to an equilibrium dictated by the matching law
15. Melioration suggests that choice is driven by a comparison of the average returns from the alternatives.
16. Equilibrium occurs when one alternative has displaced the others (then choice will be at the extremities of the graph) or the alternatives in the choice set are providing equal returns per unit consumption (choice will be in the middle of the graph)
17. Because of melioration, organisms tend to disregard the overall returns (global utility) and only focus on the current average returns (local utility) from the alternatives.
18. Melioration explains suboptimal behavior, especially in cases of distributed choices where organisms do not make a once-and-for-all decision about alternatives, but rather, repeated choices are made over a period of time.
19. No single choice is responsible for obesity, alcoholism, spendthriftness, etc.

20. Graph above:

• Allocation to VI: proportion on alternative that needs to be sampled only occasionally (Impulsive choice)³
• Reinforcement: Rate of reinforcement from impulsive choice while the subject is choosing it. The less time spent on this alternative, the higher the rate of reinforcement when it is eventually sampled. This models a source of reinforcement that gets depleted when it is sampled and restores itself when unsampled, or a motivational state that fluctuates with deprivation and satiation.
• VR⁴ linear curve – Reinforcement only occurs when the alternative is sampled. There is a fixed rate of return per unit time invested on it.
• When behavior allocation to VI is low, the rate of return is higher than VR⁵. Due to melioration, the subject allocates even more behavior to VI. However, doing this causes the rate of return to fall below VR. As a result, melioration causes the subject to stop allocating behavior to VI. Within both extremes is the equilibrium point where both alternatives provide equal rates of return per investment
• To maximize, the subject has to find the highest point on the “joint” curve. That is, the subject would have to resist the temptation to allocate more behavior to VI. In practice, however, most organisms fail to resist this temptation.

21. Rational choice theory describes distributed choice only in situations where the distributed nature of the choice is immaterial (i.e., returns do not depend on frequency of sampling)
22. Rational choice theory can only provide guidance on how choice behavior should be allocated (normative), rather than how it is allocated (positive)
23. We may need rational choice theory only because we often act suboptimally

FOOTNOTES:

1. In layman’s terms, a fixed interval (FI) schedule implies that a decision maker will get access to a choice option after the passage of some fixed unit of time (e.g., seconds, minutes, hours, etc.). All things being equal, waiting for a fixed interval of 5 minutes before accessing your choice is obviously better than waiting for a fixed interval of 10 minutes ↩︎
2. Schedules of reinforcement refer to the rules governing access to a particular choice option. When they are concurrent, it implies that there are at least two different rules, in operation at the same time, governing access to the available choice options. ↩︎
3. In a variable interval (VI) schedule, the decision maker will get access to a choice option after the passage of some variable unit of time. From the perspective of the decision maker, there is a lot of uncertainty in estimating when that access will be granted. This implies that continually expending effort towards an option governed by a VI schedule is likely going to be an exercise in futility since the passage of time, not effort determines access. ↩︎
4. In a variable ratio (VR) schedule, the decision maker will getter access to a choice after some variable amount of effort. Here, what determines access is the expenditure of effort, rather than the mere passage of time. Therefore, the more effort applied towards accessing a choice option, the greater the likelihood of getting access to it ↩︎
5. Because the choice under the VI schedule is solely dependent on the passage of time, the decision maker is better served by expending little effort on this option. ↩︎

Staddon, J. (2012). The Malign Hand of the Markets: The Insidious Forces on Wall Street That Are Destroying Financial Markets–and What We Can Do About It. McGraw Hill Professional.

Preface

Introduction

1. The malign hand appears wherever benefits are immediate and discrete for an individual/a group, while costs are delayed and/or dispersed for others (p. xxi)
2. Reinforcement contingencies are simply the rules by which rewards and punishments are given or withheld (p. xxii)
3. Seeing financial instruments as reinforcement contingencies shifts the analyses of economic behavior from the rational-irrational dichotomy to one of adaptation (p. xxvi)

Part I

Chapter 1 – The Malign Hand

1. Bureaucracies increase because the incentives of bureaucrats do not align with the incentives of the organization they are a part of (p. 4)
2. Competition is the natural antidote to the malign hand (p. 4)
3. Politicians divert national funds to their districts. This leads to immediate concentration of benefits to the members of the district and a delayed dispersion of costs to the larger nation as a whole. Of course, those who bear the cost have less influence than those who incur it (p. 6)
4. There is a tradeoff between efficiency and stability which is not too removed from the tradeoff between immediate gains and delayed benefits. As global systems become more interconnected, they will become more efficient in the short-run at the risk of instability to the system in the long-run (p. 11)
5. Organisms prefer positive reinforcement to negative reinforcement (p. 15)

Chapter 2 – Democracy, Fairness and the Tytler Dilemma

1. Alexander Tytler, a 18th-century Scot aristocrat, is attributed to saying have said that: “A democracy cannot exist as a permanent form of government. It can only exist until the majority discovers it can vote itself largess out of the public treasury. After that, the majority always votes for the candidate promising the most benefits with the result the democracy collapses because of the loose fiscal policy ensuing, always to be followed by a dictatorship, then a monarchy.” Staddon interprets that private good as immediate benefit from public treasury, and collective bad as public bankruptcy (p. 23)
2. Problems arise when benefits received by an individual/a group is not linked to the behavior of that individual/group and is paid by other (p. 26)

Chapter 3 – Value and Reason

1. Defining value in objective terms is referred to as the naturalistic fallacy (p. 40)
2. Adam Smith defined value as the work done to acquire a commodity. This is also referred to as the labor theory of value. However, oxygen is freely available to everyone and doesn’t demand much effort, while gold is scare and requires much effort to attain. Yet, one will not conclude that gold is more valuable than oxygen. Some economists then made the distinction between value in exchange (gold) and value in use (oxygen). Another way to see Adam Smith’s definition of value is to lay more emphasis on the willingness to work (a property of the decision maker), as well as the commodity’s reinforcement schedule, as opposed to the real work done to obtain the commodity. In all, value is not a property of the commodity itself. Thus, to make an assessment of relative value, both the effort, as well as the reinforcement schedule must be considered. When reinforcement schedules are similar, oxygen will be more valuable than gold (p. 41)
3. A decision maker has a set of different strategies (variation) and some means of comparing them (selection). If the strategy set is rich and the selection rule appropriate, the resultant behavior will be apparently ‘rational’. However, if the strategy set is limited, or the selection rule inappropriate, the behavior will appear to be biased, or based on a heuristic (p. 48)
4. There nothing like purely rational behavior. If the task is simple and close to something encountered in one’s history, behavior will come close to a rational optimum. However, when the situation is complex, subjects will act irrationally, or rational in the short-run (p. 49)
5. Behavior can be rendered rational once the currency and the constraints are salient (p. 49)
6. Maladaptive behavior is a consequence of recent history and feedback effect of present behavior on the future. Staddon calls this ‘leverage’ (p. 53)
7. There is no single rational strategy, multiple ones depending on the what is maximized and the constraints (p. 54)

Chapter 4 – Efficiency and Unpredictability

1. In everywhere, except economics, efficiency is usually a ratio. In economics, it is defined in as the extent to which commodities’ prices are reflective of information (p. 55)

Chapter 5 – The Housing Bubble

1. Frank Knight (1921) distinguished between risk, where the odds can be calculated; and, uncertainty, where the odds cannot be calculated (p. 79)
2. The future is like the past over a short period. The present will at some point fail to match with the past – but we don’t know when that will occur (p. 80)

Chapter 6 – Market Instability and the Myth of Comparative Statics

1. Greed is a constant of human nature and as a result, market bubbles cannot be solely explained by them. What is more likely is a malign schedule of reinforcement. For many brokers, individual upside outweighs personal downside. But for the financial system as a whole, the situation is reversed. Similarly, brokers have leverage because they control large amounts of money while only responsible for a fraction of it (p. 95)

Chapter 7 – Growth and the Conservation of Money

1. Instead of looking for the causes of boom and busts, it might be better to explore the kinds of constraints that can stabilize markets (p. 101)
2. Hobbes and Rousseau’s conceptualization of man ignored the role of markets and the need to for individuals to trade (p. 107)
3. Staddon is suspicious of any measure of economic growth reliant on money. The Incas and Aztecs probably had a higher GDP than their conquerors. Yet, their wealth made them more of an easy target. Rather, growth can be better assessed with freedom (people aren’t spending all their time looking for food or housing) and resilience (people can better adapt to change) (p. 107-8)

Chapter 8 – Debt, Inflation and the Central Bank

1. Inflation functions like a flat tax on both wealth and income. Thus, even when people get salary raises, their wealth remains constant. (p. 121-2)
2. Constantly falling price are not hazardous to the economy. The price of clothes and electronic products have declined over the years, yet their markets have not stagnated (p. 127)
3. Deflation is only bad for debtors since as time passes, the worth of their debts will increase. On the other hand, inflation hurts people who save money (p. 128).
4. The Central Bank (Feds in the US) controls interest rates by buying up short-term treasury bills. Since the Feds use cash reserves to do this, banks have more money to lend at a low interest rates. As with the law of demand and supply, the increase in supply of loans drives its price (interest rates) low (p.134).
5. Quantitative easing occurs when interest rates are close to zero and the economy is still in a recession. Rather than only buying short-term treasury bills, the government buys other types of securities, e.g., corporate bonds, etc. The money to do this doesn’t come from the reserves, but is simply created by the Central Bank (p. 135)
6. When the Central Bank buys short-term treasury bills, it is usually a sign that business will be bad in the future (p. 137)
7. The more complex a security or asset is, or the greater the uncertainty about its value, the more its price will be determined by other people’s behavior (p. 139)
8. Two cause of bubbles – herding and a new money supply. Again, since herding is human nature, the problem may be better solved by looking at the way governments supply money (p. 140)

Chapter 9 – J M Keynes and the Macroeconomy

1. Adaptation is the result of variation, which is endogenous; and, selection, which is determined by the environment (p. 151)
2. Neither the pattern of incentives, nor the market sentiment on its own can explain economic behavior – we need to understand what people are willing to try, what informs/motivates this willingness, and the consequences of people’s actions (p. 153)
3. The problem for the political system is how to restore confidence in the economy while harming as few innocent victims as possible, while punishing those responsible for causing economic slumps (p. 158)
4. If the economy is like a leaky bucket, the solution is to either reduce the leak (structural changes) or permanently increase inflow (inflation) (p. 160)

Part II

Chapter 10 – Financial Markets are Different, I: Problems and Some Solutions

1. Information has to be converted to action. Saying, like the Efficient Market Hypothesis, that stock price reflects all information about the underlying stock is borderline religious (p. 180)
2. Complexity of financial markets should be subject to some check, such as tests for comprehensibility (p. 186)
3. Technology in agriculture reduced agricultural employment since farmers became more efficient. The same cannot be said about financial markets where technology is used in complexifying (p. 192)

Chapter 11 – Financial Markets are Different, II: Risk and Competition

1. In a competitive market, injury to one firm will make others more profitable (p. 202)
2. Bloated profits of the financial industry come from the future. A few people’s current payouts will be suffered as debt in the future – in the form of debt defaults, higher taxes or inflation (p. 206)

Chapter 12 – Financial Markets are Different, III: Regulation by Rule

1. There should be a tax on financial risks – negligible tax on small risk and large taxes on large risks (p. 232)