Are you a good Driver?
Are you a better-than-average driver?
The first question is easier to answer; most people answer quickly by saying yes. The second question is much more challenging and for more respondents almost impossible to answer seriously and correctly because it requires an assessment of the average quality of drivers. It comes as no surprise that people respond to a difficult question by answering an easier one, by comparing themselves to the average without even thinking about the average. The upshot is that we tend to be overly optimistic about our relative standing on any activity we do moderately well.
It is tempting to explain optimism by wishful thinking, but emotion is only one part of the story.
❖ We focus on what we want to and can do, neglecting the plans and skills of others.
❖ In explaining the past and predicting the future, we focus on the causal role of skill and neglect the role of luck.
❖ We focus on what we know and neglect what we do not know, which makes us overly confident in our beliefs.
What is second-order thinking?!
Second-order thinking is a necessity to think beyond what we know, things we haven’t thought about by applying divergent information and forming new associations and connections. Our experiences and beliefs also limit our ability to go beyond the natural and seek hard truths by asking difficult questions, exploring unknown territories, and doubting what may seem like an obvious choice.
A book called “The wages of wins”, was an attempt by three economists (David Berri, Martin Schmidt, and Stacey Brook) to develop a more sophisticated statistical measure for rating professional basketball players. The trio developed what they called a “win score”, which was a rating system based on combining points, assists, rebounds, turnovers, and shooting percentages in a complicated equation. So, when they ran the “win score”, they found that several people who are thought to be really good end up looking mediocre, and the people who looked mediocre turn out to look surprisingly good!
A large number of sports fans, as turned out, refused to believe that a set of statistical tools could help them understand how good a basketball player someone was. They thought that their instincts were a much better guide to that question.
Evaluating basketball players is a very good example of what I’ve been talking about here- the necessity of understanding when to use second-order thinking and when not to. If you think about it there are two ways to evaluate an athlete. The first is the athlete’s performance in a particular game, series, or season. To make this kind of assessment, it's very hard to rely on second-order thinking models.
For one thing, these judgments rely on experience, and we don’t experience everything that happens on a basketball court or any other sport. We miss things. Furthermore, a lot of things we try to measure are subtle. As the economists point out, the basketball legend Ty Cobb had a lifetime batting average of 0.366, in comparison with Tony Gwynn who had an average of 0.338. If you all did just watch these players, could you say who was a better hitter? To see the problem with the non-numbers approach to player evaluation, consider that out of every 100 at-bats, Cobb got three more hits than Gwynn. That’s it, just three hits. This is why we keep statistics in sports, and why it makes sense to do a computer analysis of all the factors that go into diagnosing heart attacks. These are some situations where the human mind needs help.
How the human mind works!
Another way the human brain works is,
“It focuses on possibilities and not probabilities.”
Let’s take an example,
You have been exposed to a disease that if contracted leads to quick and painless death within a week. The probability that you have this disease is 1/1000. There is a vaccine that is effective only before any symptoms appear. What is the maximum you would pay for the vaccine?
Most people will be willing to pay significant but a limited amount. Facing the possibility of death is unpleasant, but the risk is small and it seems unreasonable to ruin yourself to avoid it. Similar to the trends that we see during the outbreak of coronavirus. Now consider a slight variation:
Volunteers are needed for research on the above disease. All that is required is exposing yourself to a 1/1000 chance of contracting the disease. What is the minimum you would ask to be paid to volunteer for this program?
As you might expect, the fee that volunteers set is far higher than the price they were willing to pay for the vaccine. Two reasons,
1) You will be responsible for the outcome if it is bad.
2) You know that when you wake up one morning with symptoms indicating that you will be soon dead, you will feel more regret in the second case than in the first, because you could have rejected the idea of selling your health without even stopping to consider the price.
Probability doesn’t work with complex systems because we have no idea about the range of possible outcomes.
Second-order is one step into the future. The deeper you go, the harder it gets. Anything after the second level in life becomes too uncertain. You’re multiplying small probabilities by smaller probabilities. This leads to even smaller probabilities for the events you’re considering. We get a long list of events that might occur, but we forget how small the probabilities are.
Another way the human mind works is in terms of Systems and Psychology!
I think Psychology is a specific application of thinking in systems. The human system dynamics are so complex that we had to create this specialized branch just for ourselves.
Or maybe we are very self-indulgent.
Our main goal with systems thinking is to build a model to explain the system.
In system thinking terms, we need to tighten your feedback loops. If there’s lots of delay between our decisions and their outcomes - we wouldn’t know what caused the outcome. The second way is facing the same situation again and again. We get to make different decisions again and again - and figure out the best ones. This helps understand the structure better. If we don’t play a repeatable game, you can’t improve your decision-making. This is one way to improve decision-making - playing a repeatable game, where we get to make the same decisions again and again, get feedback quickly, figure out where we went wrong, and self-correct.
A deliberate attempt to apply second-order thinking while making important decisions can provide a huge advantage to us. I hope to inspire you to think differently, make that extra effort to visualize the future and reap its many benefits.
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