(image credit: Motihada)

More power to the imagination

In praise of an underrated and underused mental instrument in decision-making

There is more to economics than the economy. Much of human interaction is a form of trading: we give something up, and we get something in return. Every time we do such a thing, a trade-off is being made. When we are making such trade-offs consciously, we can usually justify our choice based on using reason to evaluate the gains and the sacrifices, even if we have to work with limited information, and if we cannot possibly compute all the possible consequences.

We make many choices unconsciously too, of course — out of habit, or applying a simple heuristic, for example. The trade-offs in such choices still exist, but they do not necessarily reflect an expressed preference, whatever economists who adhere to revealed preference theory may say.

A striking example can be found in a study by Shaun Larcom, a Cambridge economist, and colleagues, that looked at the travel patterns of London commuters. They found that a two-day strike on the underground system caused around 5% of travellers to adopt a different route, and to stick with it. One possible explanation for the inefficiency of the original journey the authors give is the fact that the London Tube map often provides an inaccurate picture of distances: the effect was stronger where the distortion is more extreme. Commuters ‘choose’ a route based on the map, and then maintain what they’ve always done; they do not calculate the optimum route. Being forced to try an alternative helped some of them discover a better choice.

But reasoning — or appearing to reason — is not necessarily evidence of a balanced consideration of costs and benefits. The legend of Faust describes the economic transaction between the central figure and the Devil, in which Faust trades his immortal soul for unlimited knowledge and worldly pleasures. He does not do so on a whim, but the story nevertheless paints him as someone driven by the short-term benefits, neglecting the longer term — eternal even — costs of the deal.

Not all decisions require a burning platform (photo: via Wikipedia)

Now, sometimes we don’t have the luxury of patiently deliberating the possibilities that lie ahead of us and weigh up the pluses and minuses. In organizational change, the phrase ‘burning platform’ is often to refer to a highly compelling reason to do something different (or differently). It has its origin in the Piper Alpha explosion in July 1988. When an oil platform is on fire behind you, you don’t worry about how long you might survive in the cold North Sea water 15 stories below. When a decision genuinely involves life and death, your System 1 rightly takes over. You just jump.

But we are pretty good at mobilizing our System 1 even when the issue facing us is not one of sheer survival. If we want to avoid, or ensure, something at all cost, we are acting as if it is a matter of life and death. We engage the visceral mechanisms that serve us well when we experience an intense threat to our life, or to the lives of our loved ones — when there is in fact no such threat.

Sometimes a single issue can come to dominate our powers of reason to such an extent that it feels as if it must be pursued no matter what. We may think we are still reasoning, but often we are deluding ourselves. On a small scale, cravings can cause this to happen. We know that we should not open and scoff a third bag of crisps, or that we should not have another large glass of pinot noir, because we will regret it tomorrow — when we step on the scale, or experience the painful fireworks of a hangover. And yet, they become the most important thing in the moment, the thing that must happen at all cost, and we reason that the extra crisps or wine won’t make that much difference, really.

On a large scale we find issues like — how can we avoid the subject — Brexit. But let’s not look, for once, to the pros and cons of Leaving or Remaining in the EU, nor even to the content of the draft Withdrawal Agreement (WA) — the binding treaty that will secure the divorce after a 45-year marriage. Let’s cast our eye instead to the politics in the House of Commons, the lower chamber of the UK’s parliament.

When prime minister Theresa May unexpectedly lost her majority in the early elections she had called in May of 2017, she needed support from outside her party to form a minority government. She got it from the Democratic Unionist Party, which seeks to keep Northern Ireland within the UK (against the slow, but persistent trend towards unification of the whole of the island of Eire). As the agreement was struck, the DUP said, “The alternative [to a Conservative government] is intolerable. For as long as Corbyn leads Labour, we will ensure there’s a Tory PM.”

Now, that general confidence-and-supply agreement is in peril. The DUP, with just 10 MPs, was able to gain significant concessions from the government in return for their support. But they are now refusing to back the WA because of the notorious backstop relating to the border between Ireland and Northern Ireland. This will not only jeopardize the disproportionate influence on policy they have, but also increases the chance of new elections, which may well lead to the Corbyn government they called ‘intolerable’ not much more than a year ago.

On the other side, we have Labour which, under Jeremy Corbyn, is in favour of a united Ireland, and hence diametrically opposed to the DUP. Yet Diane Abbott, the shadow Home Secretary, said in a radio interview last week: “At this point we don’t agree with the DUP on the issues at stake, but in this parliamentary turmoil you can’t necessarily rule anything out. People in [Abbott’s constituency] Hackney sent me to parliament to get rid of the Tories, and if it’s all about getting rid of this Tory government, you have to do what it takes.” Maybe not quite a pact with the devil, but it comes close.

But it might be wrong to attribute these two cases of intense focus on a single issue to the dominance of System 1. There is plenty of reasoned justification involved. But what we may be observing here is the failure to imagine the full consequences of all the options.

In order to make good decisions, we need to be able to consider future states of the world. Our System 1 may produce a quick and dirty evaluation of a future state, and our System 2 may give us a more considered assessment — but they both require something to work with. This is what Leigh Caldwell, a cognitive-behavioural economist, has labelled System 3. There is both neurological and psychological evidence of the existence of such a third, distinct mental process.

Maybe System 3, as Leigh argues, can (and does) make decisions autonomously, alongside Systems 2 and 1, depending on the situation. Another possibility is that the three cognitive systems work together and come to some kind of consensus — with sometimes only one or two of the three systems actively engaged. But whichever model you consider (and we need to recognize that these systems are just part of a model, not actual reality), one thing is clear. Unless we have a good detailed idea of the possible outcomes of a decision, we can only work with the present information — and that is not always a good predictor of the future.

Imagining a quicker commute is not that easy

We do not always use that System 3 as much as we could. It takes effort, and it can lead to unpleasant cognitive tension — we may say “I can’t imagine” something, but that often means we don’t want to imagine it, because it makes us feel bad. So our System 1 responds to the immediate situation, and/or our System 2 calculates the costs and benefits of the options as they are presented here and now. With more input from our System 3, we could more thoroughly evaluate not just the end states, but also the path to get there in the different possibilities ahead of us.

Whether it is imagining a quicker journey into work, or the outcome of a momentous political decision, we may well be better off by giving more power to our imagination.

Originally published at koenfucius.wordpress.com on November 30, 2018.

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Accidental behavioural economist in search of wisdom. Uses insights from (behavioural) economics in organization development. On Twitter as @koenfucius

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