People do not often make decisions that are rational

by MontyPython

The Allais Paradox
[Via Wired Science]

Maurice Allais, a Nobel prize winning economist, died earlier this month. In this post, I’m going to focus on one of his many intellectual contributions, as it profoundly influenced modern psychology. It’s known as the Allais Paradox, and it was first outlined in a 1953 Econometrica article. Here’s an example of the paradox:

Suppose somebody offered you a choice between two different vacations. Vacation number one gives you a 50 percent chance of winning a three-week tour of England, France and Italy. Vacation number two offers you a one-week tour of England for sure.

Not surprisingly, the vast majority of people (typically over 80 percent) prefer the one-week tour of England. We almost always choose certainty over risk, and are willing to trade two weeks of vacation for the guarantee of a one-week vacation. A sure thing just seems better than a gamble that might leave us with nothing. But how about this wager:

Vacation number one offers you a 5 percent chance of winning a three week tour of England, France and Italy. Vacation number two gives you a 10 percent chance of winning a one week tour of England.

In this case, most people choose the three-week trip. We figure both vacations are unlikely to happen, so we might as well go for broke on the grand European tour. (People act the same way with lotteries: we typically buy the ticket for the biggest possible prize, regardless of the odds.)

Allais presciently realized that this very popular set of decisions – almost everybody made them – violated the rational assumptions of economics. Instead of making decisions that could be predicted by a few mathematical equations, people acted with frustrating inconsistency. After all, both questions involve 50 percent reductions in probability (from 100 percent to 50 percent, and from 10 percent to 5 percent), and yet generated completely opposite responses. Our choices seemed incoherent

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Our economic system is based on a free market based on rational decisions. But people do not have an intuitive understanding of probability so they make decisions that are often simply wrong, based on the math. This may be changing, as our younger citizens seem to get this better, perhaps because of video games. But it can have a huge effect on all sorts of decisions we make unless we consciously examine the math.

There is no mathematical difference between the choices of 1% or 2% or 25% and 50%. One is exactly half as likely to happen as the other. And everyone who actually figures this out raise you hand? Not many because we just do not really ‘get’ probabilities.

But what these researchers found is that we hate losses and will accept some pretty bad deals if they minimize the losses. Look at this little humdinger:

The U.S. is preparing for the outbreak of an unusual Asian disease, which is expected to kill 600 people. Two alternative programs to combat the disease have been proposed. Assume that the exact scientific estimates of the consequences of the programs are as follows: If program A is adopted, 200 people will be saved. If program B is adopted, there is a one-third probability that 600 people will be saved and a two-thirds probability that no people will be saved. Which of the two programs would you favor?

When this question was asked to a large sample of physicians, 72 percent chose option A, the safe-and-sure strategy, and only 28 percent chose program B, the risky strategy. In other words, physicians prefer a sure good thing over a gamble that risks utter failure. They are acting just like the people who choose the certain one week tour of England. But what about this scenario:

The U.S. is preparing for the outbreak of an unusual Asian disease, which is expected to kill 600 people. Two alternative programs to combat the disease have been proposed. Assume that the exact scientific estimates of the consequences of the programs are as follows: If program C is adopted, 400 people will die. If program D is adopted, there is a one-third probability that nobody will die and a two-thirds probability that 600 people will die. Which of the two programs would you favor?

These two different questions examine identical dilemmas. Saving one third of the population is the same as losing two thirds. But when Kahneman and Tversky framed the scenario in terms of losses, physicians reversed their previous decision. Only 22 percent voted for option C, while 78 percent of them opted for option D, the risky strategy that might save everyone. Of course, this is a ridiculous shift in preference, as nothing substantive has changed in the scenario.* But our choices are guided by our feelings, and losses just make us feel bad. Because the coldhearted equations of classical economics neglect emotion, their description of our decisions remained woefully incomplete.

These two scenarios have exactly the same mathematical properties, yet simply by changing the wording of the losses, people changed their choice.

I think this is why so many people get the ‘Monty Hall Problem‘ wrong. Everyone almost always assumes they pick the right door, so they are afraid to change. They would feel awful if they changed doors and ended up getting the goat. Yet the chance of that actually happening is exactly the same as picking and winning the car without switching – one out of three. The chance of losing if you switch is the same as winning if you don’t. Yet people worry about the loss more and take the chance on the car.

And in doing so they make the wrong decision.

But what if you come at it from the more likely scenario – you chose the wrong door.?You will do this two out of three times. If you do not change, you will win only 1/3 of the time. But if you switch, you will win 2/3rds of the time.

I got this almost immediately but I had such a hard time explaining it to people until I constructed a table showing all possibilities and walking them through it.

Now, what would you do if it was the Lady or the Tiger with three doors? If most people actually followed their inclinations, 67% of them would die. If they understood probabilities, 67% of them would live.

That is why understanding uncertainties, losses and probabilities can be so very important.

Pepsi in our water future?

i-crop: Pepsi’s Revolutionary Precision Farming System
[Via Big Think]

Sustainable farming is a topic of pressing interest and a domain of growing innovation in agriculture, but it’s an incredibly complex issue involving multiple interrelated factors. A new partnership between Pepsi UK and Cambridge University addresses one of the most critical components in sustainable agriculture: Efficient water use in crop management.

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This sounds pretty exciting. I just wonder how much Pepsi will charge for using the proprietary IP it is creating. It opens up something interesting to think about. What could they charge for a process that can make farmers 90% efficient with their water usage? We are all helped by making sure water usage is optimized. As the water cycle becomes more and more distorted, we will not want many farmers to be wasting water.

Do we require everyone to use Pepsi’s technology or whomever has proprietary IP on this or does the government use its power to ‘take’ the IP for a fair price? Which will maximize our best use of water?.What is the best price?

Freshwater plankton at risk

by eelke dekker

Warming threat to life in rivers
[Via BBC News]

Future warming could have “profound implications” for the stability of freshwater ecosystems, a study warns.

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I’ve mainly been focussed on the effect of temperature and acidification in the salt water environment. Here we have some data on what happens in warming fresh water systems.

What seems to happen is that the ‘plant’ plankton, which produce while soaking up carbon dioxide are replaced by ‘animal’ plankton which do the opposite. They are smaller also, representing a large decrease in biomass needed for other life to eat.

“An inordinate amount of the primary productivity and carbon draw-down in ocean and freshwater ecosystems are carried out by microscopic planktonic organisms.”

So, less of the plankton that removes carbon and less food for other life to eat.

Now, this is in a lab and in a controlled environment. But it does indicate that there will be huge changes in the ecosystems of freshwater plankton, with a strong possibility of very devastating effects on the carbon cycle in the future.

Luckily he has someone fighting for him

from Wikipedia

UVa still fighting climate witch hunt, ups the rhetoric
[Via Bad Astronomy]

I’m happy to report that my alma mater, the University of Virginia, is not only fighting back against State Attorney General Ken Cuccinelli’s witch hunt against climate scientist Michael Mann, they are also being pretty clear about their protest:

In its most strongly-worded court filing to date, UVA characterized Cuccinelli’s investigation as “an unprecedented and improper governmental intrusion into ongoing scientific research” and said that Cuccinelli is targeting Mann because he “disagrees with his academic research regarding climate change.”

In other words, they’re saying this is a politically and ideologically motivated abuse of power, which I’ve been saying all along.

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The use of legalisms and political intimidation against science seems to be part of humanity. When the natural world does not agree with political ideology, some attempt to criminalize the science. Like that will make the science go away.

The University has already expended almost $400,000 in this fishing expedition based on disagreement. This is one reason few scientists ever want to get involved in anything that catches a politician’s eye. Once that happens you ability to actually do the research you love is often severely curtailed. There has been a big push recently to try and get more scientists to engage the public with their research.

We can see here why they are hesitant. Go against an ideologue’s views and you can find yourself under investigation. In this case, the AG is supposed to state the actual false claim made. He can not just use the law to look for emails that might be used to bolster some sort of legal attack. The AG is supposed to know beforehand what crime was committed, not go on a general fishing expedition. As the University’s filing states, the AG is going after the researcher for work that was done in a different state at a different institution and that happened before the particular law he is using was even created.

He appears to have no idea of just what the scientist might have done while working in the state. He just wants access to emails and stuff from 10 years ago in order to hope he can do something.

How many of us would like the state AG to go through all of ou emails looking for something that, out of context, could be used for a nice trial?

Luckily, the scientist is not having to pick up the legal fees himself. Not everyone is so luckily when the state decides to use intimidation.

Galileo had it right. No matter what the ideologues try, it does not negate the science.Unfortunately, we do not have 400 years for them to see their error.

The President signing an iPad, with video

Obama autographs Apple iPad (with video)
[Via MacDailyNews]

At a recent campaign rally, Sylvester Cann had U.S. President Barack Obama sign his Apple iPad…

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Check out the video at MacDailyNews as well as a picture of the signature. The guy’s website is hosed because of all the hits it took today. I had seen a photo of this from another angle from the AP:

A rally participant asks President Barack Obama to sign his iPad as the president greets the crowd during a rally for Sen. Patty Murray, D-Wash., Thursday, Oct. 21, 2010, at the University of Washington in Seattle. (AP Photo/Susan Walsh)

Presidents do not usually sign autographs in the rope line. Apparently security worries about them being used as a weapon that close to the President. So this guy thought, I’ll have him sign my iPad. He wrote out the request on his iPad, put a place to sign and quickly showed the President how to use his finger.

You can see the President look a little quizzically at the iPad and both the Secret Service guys move in close to examine. The President looks like he got a kick out of signing the iPad with his finger. Cute idea.

Apple should use something like this in an Ad. Only the iPad could easily get the President’s signature full-scale like this. Trying to do it on a phone would not have worked nearly as well.

So, not only are iPad competitors all 20 lengths behind but all of them forgot to feed their horses?

Analyst: Apple well-positioned to avoid Christmas inventory crunch
[Via MacDailyNews]

“It’s not just a cliché: Apple really does think different,” Elizabeth Woyke reports for Forbes. “The latest example: supply chain smarts. Though a number of analysts expect inventory problems to depress holiday sales of gadgets, Apple is believed to have insulated itself from such problems.”

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I talked about the other day about MS being so far behind with their phones. Similarly with iPad competitors. They are almost a year behind. And they may not even be able to supply a small amount for the holidays.

Apple may have sucked up all the parts. That happens when you catch you competitors flat-footed and make long term contracts for all the flash memory available. Hard to sell much of something if you can not get parts.

So, see if this sounds encouraging for some of these competitors. Daughter wants iPhone. Father like Windows 7 phone on an HTC model. When he goes to the store, none of these phones are available but lots of iPhones are there. Might as well get what the daughter wants.

Or how about Verizon selling the iPad with a MiFi? That looks even cooler than the Windows phone. Why not get some iPads for the whole family?

[Listening to: How Deep Is the Ocean from the album "Clapton" by Eric Clapton]

Well, I guess FaceTime is going to take up more server space

Apple may double North Carolina data center to 1M square feet
[Via AppleInsider]

While the exact purpose of Apple’s 500,000-square-foot data center in North Carolina remains unknown, a new rumor says the company is already considering expanding the server space to a million square feet.

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If FaceTime can reduce the dependence of Apple on wireless carriers, then I guess another billion dollars is worth it. And if it will permit competition with cable and broadcast TV, then it is worth it.

[Listening to: Harvest Aorta from the album "Harvest Aorta" by Ephemeral Sun]