At the talk he gave last week, Cass Sunstein warmly recommended The Logic of Failure: Recognizing and Avoiding Error in Complex Situations by Dietrich Dörner. So warmly that I bought a copy and read it on my train journeys yesterday. It’s a very good account of what goes wrong with decision-making in complex situations – including any economic context – although I wouldn’t be quite as glowing in my praise as Prof Sunstein was. Still, definitely one to read, along with Nudge, Predictably Irrational, The Invisible Gorilla, Risk Savvy, Gut Feelings etc etc., if the issue of decision-making is of interest to you.
Some of the psychological territory it covers is familiar from the now-ample behavioural economics literature. This includes the difficulty of making calculations, the salience of recent events or things we just happen to have noticed, the problem of limited attention. However, less familiar was the diagnosis of how hard many people find it to take account, not only of interactions between variables, but also dynamics – it seems almost impossible for many people not to extrapolate in straight lines, and not to be too impatient to wait for feedback.
The book uses the results of lab experiments to illustrate the point over and over, including very simple challenges like including a time delay between setting a regulator dial and achieving the target temperature. The relationship between dial and degrees C is simple and linear in this example, but only one participant is patient enough to wait for the response to her first moves of the dial before finding the right setting. This inability to wait is obviously a near-universal characteristic. Certainly, my husband has this issue with every shower he gets into despite my calmly explaining it to him many times, and ends up with the totally predictable oscillating temperatures as he over-reacts to short-term feedback. (Of course, he does have the patience to be married to an economist.)
The book concludes that people can learn to be better decision makers but concludes with a very long list of the traits that we need to acquire to achieve good outcomes in non-linear dynamic and complex contexts with limited information i.e. the world. I finished reading it feeling more pessimistic. There are many examples given of participants in experiments who concluded that it was efficient to have inflicted a famine on a country on the computer, or that a bad outcome was the result of a conspiracy (by the computer!) against them. As the world is ever more replete with instant feedback, what are the chances of getting a more patient and psychologically sophisticated politics?