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Mind matters

Businesspeople are increasingly interested in psychology and the role of irrationality in decision-making – it opens up some troubling questions.
Mind matters
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© Melissa Bailey

You don’t hear people talk about “rational self-interest” much any more. It’s not that long ago that people believed – or pretended to believe – that we were living in some sort of brave new world where, if only government and regulators would get out of the way, and good old homo economicus was left to his own devices, then markets would function perfectly, economies would thrive and it would be proved once and for all that what is good for bankers is good for everybody else. All was for the best in the best of all possible liberalised global economies.

But it wasn’t true. Like all bubbles, the boom was largely based on irrationality, we see now. Hence the popularity of books like Nassim Nicholas Taleb’s Fooled by Randomness, Dan Ariely’s The Upside of Irrationality, Nudge by Richard Thaler and Cass Sunstein and Daniel Kahneman’s Thinking, Fast and Slow, all of which show just how unconscious biases, irrationalities and emotions influence our behaviour. Concepts like loss aversion, cognitive dissonance and framing are now commonplace. No doubt this is a good corrective to the arrogance that went before, but is it going too far?

School of thought
Last summer I took part in a session at a business school about the irrational ways that groups work. It was fascinating. I was in a group of seven journalists, including six women. In total about 90 people took part in the exercise, and there were maybe four women outside our group. We were set a task, which involved deciding which of six dying people ought to receive a life-saving treatment.

There was a cancer scientist, a white European car mechanic, a Japanese lesbian secretary, a rich, talented party-loving Indian student, a Jewish housewife with several children and so on. After an hour of deliberation, we chose the childless, single lesbian Japanese secretary (called Yuki), on the grounds that she was single and had no family and so would have the least emotional support if she suffered a slow, painful death. We decided that a society should protect its weakest members.

We were amazed, when we came back into the room with everybody else, to find that not a single person – I don’t mean a single group, I mean a single person – had chosen to save Yuki. In fact, nobody had chosen any of the women. This overwhelmingly male group had gone for men, except us, a mostly female group.

Also – and several of the groups had noticed this in themselves – white people had generally chosen to save white people, and brown people brown ones. At the end of the session, when our group was asked who we had chosen, there were gasps around the room. If we weren’t all persuaded that unconscious forces were at work before, everybody in the room was by the end of that session.

Group think
Without a doubt, it’s useful to be aware of this sort of prejudice. The psychologist who took the session also talked about group dynamics, the way that people pair up to form alliances, or even to bully somebody else. People can take on certain roles (devil’s advocate, champion of lost causes, chairman) that can be connected with the roles they had in their families. This is clearly true, and clearly relevant to decision-making. It makes you wonder how good decisions are ever made. Add in the biases that arise from gender, culture and the quirks of being human, and it’s even more incredible.

But the very fact that good decisions are sometimes made is evidence that perhaps all these biases and so-called irrationalities are not as endemic as the zeitgeist would suggest, and perhaps not as corrosive either. It was intriguing in the discussion after the group work that some people scoffed at the professor’s psychological analysis of their behaviour. They thought he was reading too much into some of their decisions or comments, that he was taking it too far.

He interpreted this scoffing as defensiveness, a way of covering up psychological discomfort. In doing this he was using an interesting tactic. Wasn’t he also being defensive, and shutting off criticism? And secondly, isn’t it possible that criticism, even if it is mostly or partly motivated by defensiveness, can also be valid?

Theory game
The problem with psychological explanations of behaviour is that they are often impossible to argue against. Any criticism is seen as something to be analysed, and dismissed, rather than something to be seriously considered. Karl Popper, the 20th century Austrian-British philosopher, recognised this tendency long ago. Freudians and Jungians, he noticed, could describe any behaviour in terms of their theories.

If you asked whether the theory was true, that was simply deflected. “Why can’t he accept the theory? Why is he so defensive? It must be because of a psychological inability to face the truth.” Marxists did the same, Popper said – they dismissed people who doubted their worldview, calling them insufficiently class-conscious. A proper scientific theory, on the other hand, can be proved wrong. Or to use Popper’s word, falsified. Certain observations would disprove the theory of relativity, or that the moon is made of blue cheese. It’s not clear what would disprove the theory that our decisions are motivated by irrational unconscious drives.

After the session, I asked a psychologist how decision-making changes after people take these classes. “It’s exactly the same,” she said. Maybe she didn’t mean that, but it suggested that we are all prisoners of our own psychologies, unable to overcome our pasts, our gender, ethnicity, age etc. No doubt those affect us. But how much? How can we even tell how much?

Perhaps we should embrace emotion. Behavioural economists, when recommending investment decisions, consider an investor’s psychological profile. The risk-averse accept lower returns for peace of mind – there’s no point being rich if you can’t sleep – while risk-lovers need a bit of adrenaline and will sacrifice some returns for it.

Humans are irrational, but we can choose to be rational about that fact. When it comes to dealing with other people, this can open some cans of very wriggly worms. The real question is: should we make decisions we consider immoral in order to stay psychologically comfortable, or sacrifice a bit of comfort to do the right thing? Deep waters.

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