Lubricants of Reason

[Image used without permission because I liked it - please go and buy a print here. Let me know if you want me to take it down.]
I've just finished reading Fooled by Randomness by Nassim Taleb. Hailed by Fortune magazine as one of the 'smartest books of all time', it's an exploration of the huge role of randomness in life.

Taleb is a derivatives trader and his hobby is understanding the stochastic limits of epistemology. His core thesis is that we think we know how things work because our brains like cause and effect so we apply a deterministic model to observations, which in turn leads us to make mistakes and leaves us open to being 'blown up' [trader lingo for losing way beyond what you believed possible] by very rare events of huge magnitude [he argues that in a sufficiently large samples, extraordinary high magnitude events are inevitable - the 'black swan' theory].

The book is consciously iconoclastic but his attacks on the certainties of traders and economists ring true and have interesting implications for the arts and sciences of persuasion.

In passing, Taleb dismisses classical economics as completely pointless and I agree.

Classical economics is a normative science - it describes how things should be in an idealised model, ceteris paribus - which means that it is, basically, science fiction - it simply doesn't describe how things actually are.

The foundation of this fiction is the idea of Homo Economicus - rational man - that makes decisions via a cost benefit analysis of each option and always works towards the highest possible personal utility.

This is clearly rubbish. Unfortunately, we're intellectually wed to binary oppositions, so once we realised that emotions had a role in decision making, an opposition was established between rational and emotional persuasion in communication. Maybe we make some decisions emotionally and some rationally.

Thanks to people like Phineas Gage and others who have had accidents that  messed up their amygdalas, we know this simply isn't true.

When people lose access to their emotions, they are no longer capable of making decisions. This is because if you were literally to try to apply pure logic to every decision, you're brain would freeze up with the limitless amount of data you were trying to process.

We like to think of ourselves as rational beings and we are, to a certain extent, but without the heuristics of emotion to help us, we'd never be able to decide anything. We almost never have the perfect knowledge required to make truly rational decisions. Life just isn't like that. Hence we evolved emotions.

So it's not that there are emotional and rational side pulling us in different directions but that emotions are the "lubricants of reason" - we can't think without them.

This thinking is expressed nicely in a relatively recent theory of decision making known as the somatic marker hypothesis:

Real-life decision making usually involves assessment, by cognitive and emotional processes, of the incentive value of the various actions available in particular situations. However, often situations require decisions between many complex and conflicting alternatives, with a high degree of uncertainty and ambiguity. In such situations, cognitive processes may become overloaded and be unable to provide an informed option.

In these cases (and others), somatic markers can aid the decision process. In the environment, reinforcing stimuli induce an associated physiological affective state. These types of associations are stored as somatic markers.

So decisions / stimuli that have made us feel good in the past become somatic markers that are then employed to covertly bias our own cognitive processes when we face similar decisions in the future. The covert part means people will always under report this fact in research.

This suggests that the role of communication could be simply establishing the somatic markers in association with brands, so that when consumers hit the painful decision of which jam to buy, the markers kick in and lubricate the decision, preventing paralysis and panic attack.

Brands take away the need to choose by covertly biasing cognition, and thus make our lives easier.

Comments

[Obviously]

You've clearly gone to town on this one. Nice to see you're so busy!
Obviously of course classical economists are not complettely pointless, becasue in trying understand anything, its useful to know how we would like something to work. At least then you can try to correct for the element of chance and chaos.

I'd rather be approximately right, than precisely wrong!!!!

We can discuss this further at a later date..

[David MacGregor]

Brilliant post.
The New Zealand economy has been analysed and dissected to within an inch of its slender life by economists and pundits (including our Reserve Bank). The currency has been the object of speculation. Housing prices are stratospheric and consumer spending is going like a train. Economists from all of the major banks are quoted in the media and, almost without a single lapse into accuracy, they are wrong. So much so that it would be better to behave in an exactly opposite manner than that recommended by the economists.

At the end of the day an economist is a person who is good with numbers but who doesn't quite have the personality to be an accountant.

Which President of the U.S. was so frustrated by the ambiguous advice of his economic advisors "...on the other hand.." that he requested he be sent a one handed economist.

Sounds like a book worth reading.

[Leland M]

Awesome post. Love the notion of somatic markers and something i imagine would be very useful in the future. Thanks!

Off to buy the book. (Now I'm 6 deep in books I need to read)

[TonyS]

Nice.
I quite like Taleb, he's a good read as well as making sense.

Not read his new book, but in the Black Swan he is happy enough with deterministic models, so long as we acknowedge the risks we run. His model for trading was more about trying tp pull apart the uncertainties at what he called 'the fold' (I think... I have a terrible memory).

You didn't mention whether you agreed with him or not, or where your views differed. be interested to get your thoughts.

[Andy]

What a great post.

Re: "Our brains like cause and effect", I seem to remember Freakonomics making a point that a lot of the time what we presume to be the cause of an effect is not only wrong, but that the opposite is true.

I tried to find this quote with Google. I failed, but I did find 22,000 pages...

http://www.google.com/search?q=%22cause%20and%20effect%22%20%22the%20opposite%20is%20true%22

...that feature the phrases "cause and effect" and "the opposite is true", which kind of highlights the point anyway!