Tuesday, December 15, 2009

Incentives to work and save

I always wonder how much of an effect incentives have on these models in the real world. I recognize the theory is legit - if my marginal income tax rate is at 90%, I am not going to do a lot to attract more business. But how much elasticity is there throughout the range? If my income tax rate goes from 20% to 30%, is it going to affect me at all? Especially since withholding is such an amorphous process. I am not sure most people really know what their marginal rate is at the point when they are making work v play decisions.

The incentive to save effect (paradox of thrift) idea I think is more about salience. Right now, everyone is in panic mode. But give us some time to chill out, and I bet most people go right back to overconsumption and running up the Visa bill. I just don't see our culture learning its lesson. Our nucleus accumbans always seems to win out. The chocolate cookies just smell too good to pass up.
Some great examples here of decision making biases in choosing health care options. It happens to the patients, doctors, health care providers, and more. Setting up the right incentives could solve a lot of our cost containment problems (a la Nudge or Freakonomics). But this also suggests that education will not solve the problem.

It is possible that health care panels could evaluate the empirical data and choose the coverage that makes the most sense for the most people, but this would require two tough calls:

1. How to keep politics out. This means no Congressional wrangling to compel choices for their special interests (i.e. Big Pharma), moral preferences (i.e. abortion), or constituents (i.e. skin cancer in Miami). But it also means no junk science either, which is hard because we are always working within confidence intervals.

2. To allow people to pay for uncovered procedures as much or as little as they want without making it an administrative nightmare. You can't do what has been proposed in the abortion debate (insurance riders) because until you know you need the procedure, no one would pay extra for such specific coverage. And then, it's too late. I kind of like the tiered solution that is being used now for a lot of prescription drug coverage. $10 copay for generics, $20 copay for branded drugs where there is no generic option, full price for branded drugs when there is a generic option. Or something to that effect.

Tuesday, December 08, 2009

Human Reliability versus Ease of Use

I just read the panel description for a panel from this year’s Human Factors and Ergonomics Society Conference. It was on the relationship between human reliability and usability. There were some interesting perspectives discussed. The panelists all see a mistaken perception among many practitioners that there is a disconnect.

Both groups would prefer a design that maximizes both safety and ease of use, but we all know that we often encounter tradeoffs between them. Usability practitioners want to make things easy as the primary goal. This means making things so simple that they become automatic and require little or no conscious attention.

Reliability practitioners want to interject more consciousness to prevent, or at least reduce, skill-based errors. This is important because skill-based errors are often the most pervasive when we are dealing with experienced workers or domain experts. We get so used to putting our jobs on cruise control that we are susceptible to errors that are more due to a lack of focused attention than to any error in judgment.

This leads to a layered design model that makes sure both objectives are considered. You start out considering them separately but with good communication so that you don’t develop totally different design approaches. And as the design gets closer to completion (i.e. higher fidelity), the two objectives get more fully integrated.

This is very important in domains like nuclear power plant design, air traffic control, and the military. But it is also important in situations like my previous post (e-commerce web sites).

Ease of Use versus Security

I read an article today ($ to read in full) that highlights the importance of context in design. They tested users of an online auction and the tough issue of security. Security is enhanced if you go through a rigorous registration process, but that time and effort often makes the system less attractive. Two key findings of this study are:

  1. For users expecting to be using the system for a long time, they preferred the longer, time consuming process that added security.
  2. For users that had a higher perception of the security risk, they preferred the longer, time consuming process that added security.

Of course, you are probably thinking to yourself, “duh.” But there are implications that seem to be missing from the design approach of many sites that I use.

  1. For sites that expect users to be long-term focused, or can give them that focus during their marketing pitch, they should be willing to create a more security-focused registration process even if it makes the process longer.
  2. If a site recognizes that it needs a more security-intensive and therefore longer registration process, they should start by explaining (briefly) to the user why this is important. We take for granted that people know about the risks of identity theft, zombies and worms, phishing, etc. But the number of people who fall victim to these scams suggests that the general public may not have a clue.

Monday, November 23, 2009

Bill Belichick is the model for management success

This is a great point - not about football but about the typical mid-level manager. Their incentives are not always about maximizing return or minimizing risk to the company. Often, their incentives are to minimize the probability that something they do will get noticed in a bad way by upper management. Just keeping their heads down is the best path forward. Unfortunately, this aggregates across the company into performance that is much lower than it could be. Companies need to encourage more Bill Belichicks.
Interesting post by Daniel Isenberg at Harvard Business Review. But I have to disagree in part.

There is a lot of evidence that incremental innovations yield more over the long term than breakthrough innovations, in part because there are so many more of them and that they are cheaper to develop and commercialize. BUT there are two big BUTs.

1. In the longer term, it is the breakthrough innovations that lead t...o real improvements in quality of life. So if we want to make a difference in the world, we need to have breakthrough innovations.

2. It is the pursuit of breakthrough innovations that create talented innovators. These people may be necessary to keep the stream of incremental innovators going. So if we all shift to "minnovation" as this HBS blogger suggests, we may reduce our innovation capability in the long run.

Thursday, November 19, 2009

Breast Cancer Screening

I haven't seen the actual data, so I am not going to opine on whether women from age 40-50 should get mammograms or not. But just in the one day that this discussion has been going on, I have seen so many classic decision making biases I can't resist discussing those.

1.Comparing statistical evidence and anecdotal evidence. No matter what the debate is about, there is always a great story that illustrates the benefits of one side or another. This is true whether your side has any merit or not. Anecdotes are a great political tactic, but should never be used to set policy. And yet, I have heard so many stories of the "42 year old woman named XXXX whose life was saved because she had a mammogram. Not only is she thankful for the screening, but so are her husband, teenage daughter, . . . ." Of course that will happen when millions of women are screened. But it is irrelevant to the policy decision.

2. Ignoring the costs of false positives. For every cancer that is found (true positive) there are millions of false positives. These false positives are real women too. They go through the fear that they have cancer, the pain of a biopsy, the hassle of the procedure, etc. It's not just about rationing care to lower costs. There are emotional costs as well. And there are many more false positives than there are true positives (see next comment).

3. Ignoring base rates: I have also heard the testimonials of women who say "Yes, I was afraid for a few days and had to undergo the pain and hassle of a biopsy. But it was worth it to find my cancer. So the cost benefit analysis is clearly in favor of screening." But what this argument fails to consider is that millions of women go through the fear, pain, and hassle for every cancer that is found. And in many cases, the cancer would have been found and treated even without the mammogram so even the true positives are not really true positives.

4. Validity bias. The people being quoted or interviewed vary tremendously on whether they are experts on the topic. For some reason, a cancer survivor is seen as an expert on breast cancer diagnosis or statistical analysis. Sorry, but having cancer does not make you an expert. Not even on the pain and suffering part because each woman's experience is different and your pain, while real, may not be typical.

5. Sample size bias. Also in these interviews, people toss in the results of studies. But if one study looked at thousands of women and another looked at dozens, they are not comparable. And yet, the discussion doesn't account for this.

6. Availability bias. It's much easier to think of the extreme cases (where a woman's life was saved by screening) than the more typical cases (false positives, minor cancers that would have been caught anyway, etc.). So the debate focuses on these salient stories instead of the real evidence.

7. Confirmation bias. Once a person decides which side they are on, they completely ignore all of the evidence to the contrary, even when it is being presented to them directly in a one-on-one discussion. It's amazing how good we are at this.

There are more too. But this is enough for today. Can we perhaps focus more on intelligent policy development instead of emotion-based policy development so we can actually create useful and effective policies? Anyone? Anyone?

Friday, November 13, 2009

Viva La Difference Part Deux

Ok, here is the second part I promised. Should we take these differences into account in our public policy? It's one thing for free citizens to make free decisions about how to design a product or what products to sell or buy. But should people be forced to do so? The libertarian in me says no. But of course we should think about it before jumping to conclusions.

Let's take public school policy. The government has a stake in this because a stronger educational system would lead to stronger economic growth and a higher standard of living for us all. So lets say that boys learn better with blue textbooks and girls learn better with green textbooks. Do we mandate to textbook companies that they need to spend the extra money to create two colors of textbooks, and then mandate that school systems spend more to buy them (as the increased costs would invariably be passed on)?

One example of gender-based policy is the famous Title IX which mandates that schools need to have equal numbers of male and female athletes, regardless of the interest of students, fans, or revenue. This means if a school has 100 male football players, they need to support 3 or 4 female sports to make up the difference - since most sports have 25-30 players.

If men respond better to a blood pressure drug than women do, should we mandate the the drug company spends extra money finding a similarly effective drug for women?

If you are answering yes to some of these and no to others, I will repeat a comment from a previous post. Do you have some logical basis for the difference?

Thursday, November 12, 2009

Viva La Difference!

I have been seeing a lot of research on gender differences recently. Not just in human factors, but in areas as diverse as education, economics, design, finance, nutrition, psychology, happiness, etc etc etc. There are two important overarching issues that this entire line of research brings up. Do we design differently for males and for females? And should government create regulations that compel systems to be designed differently for males and females when there is a public interest at stake. I will cover the first in this post and the second in another post.

First, should system designers create different systems for each gender? When it comes to simple things like apparel, it’s pretty obvious. Men and women have different anthropometry and different style preferences and there is no conflict. We have always had different clothing choices for men and women. Good thing too. I just don’t look very good in a dress and I can’t imagine trying to walk in heels.

But let’s think more broadly about this issue. There are biological differences that lead to different nutritional needs. Should our breakfast cereals be fortified differently? Different meal choices? And with health care we need different drugs. How far do we go with this? We already have drugs specifically targeting male and female diseases (breast cancer v prostate cancer being an obvious one), but what about making different versions of blood pressure medicine? How about different versions of Amazon.com to match different web navigation styles or background color preferences? When you log in (or using cookies) you would be automatically directed to the right version.

It gets harder when we talk about education. Boys and girls seem to learn better in single gender classrooms, but then their socialization might lag. A hybrid school may be ideal. More research would be needed to find out the best combination. But is this a direction we should pursue? What if boys learn better in an all boy classroom but girls learn better when it's 50/50? What would we do then?

I’m not really sure where I am going with this train of thought. Since most design stems from business needs, I suppose the choice comes down to whether the differences create enough customer demand that people will pay more for gender-customized products in each market. They would have to be willing to pay more to cover the added R&D, design, and manufacturing costs required to make two (or more) different sets of products in each category. For apparel, obviously the decision was made generations ago. These questions are just now being asked in these other industries. I am curious how far it will go.

Thursday, September 10, 2009

Growing up in a recession

This is from the abstract of a very interesting paper just out of the NBER (www.nber.org).

“. . . we show that individuals growing up during recessions tend to believe that success in life depends more on luck than on effort, support more government redistribution, but are less confident in public institutions. Moreover, we find that recessions have a long-lasting effect on individuals’ beliefs.”

I have some thoughts on these three findings that I would like to share.

First, layoffs are more likely during a recession (obviously). And because of the fundamental attribution error, people who are laid off are more likely to blame bad luck rather than themselves for it happening (which is often true, but even if it isn’t). And since being laid off is such a salient event, I think it is clear that recession increases the population’s belief that luck is an important factor in life (I could provide more details on the development of long term memories and the generalization of memories to overall life perspectives, but I think you get the point). This will be more of a permanent belief for those who grow up in a recessionary environment because they don’t have existing “good times” schema to anchor the development of their societal beliefs.

The second finding also makes sense. When you think life has treated you unfairly (see #1), you are more likely to want “the government” to compensate you. Many people see government support as this vague entity and don’t realize it has to be paid for by the rest of us in taxes and slows economic growth to the detriment of the very job market they need to recover. It is kind of like wanted "life" to compensate you for the bad luck that it caused. And even for those who recognize that other people ultimately pay for government support, they owe it to us because our layoff was bad luck, not our fault.

And yet the reduced confidence in public institutions also makes sense. Even as we want the government to fix our problems and expect it to because it was caused by bad luck, the fact that the recession happens in the first place is evidence that the government doesn’t know what it’s doing.

Ironically, government is often the least efficient way to help the unemployed population recover from a layoff. But this combination of beliefs increases our desire to want it to.

Sunday, August 30, 2009

The brighter side of religion

We often see the bad effects of organized religion. Fundamentalists of all persuasions cause trouble politically, socially, economically, etc. They make it into the news as terrorists, political oppressors, and other bad habits. But there is a good side as well. A new study found that

o religious people report better health
o they say they have more energy
o that their health is better
o that they experience less pain
o their social lives and personal behaviors are also healthier
o they are more likely to be married
o they are more likely to have supportive friends
o they are more likely to report being treated with respect
o they have greater confidence in the healthcare and medical system
o they are less likely to smoke.”

This was in a study of 300,000 observations in 140 countries, so it’s a pretty powerful sample size statistically. As a religious person myself, it is always good to see the positive side.

Saturday, August 22, 2009

The tradeoffs of diversity

Robert Putnam, a pretty well known Harvard Professor and a someone with a tradition of having liberal views, was doing some research on social capital and found some results that disturbed him. He was tempted not to publish them. The ethics and incentives of this decision are a great topic that I will post on later.

But for now, let me focus on the research itself. What he found is not surprising really, but in the context of his research, it has some possibly disturbing implications for a liberal viewpoint.

It turns out that homogeneous populations (people of the same age, gender, race, ethnicity, religion, etc) tend to interact more and better than heterogeneous populations. Men seem to know how to talk to other men than they do to women (surprise surprise!!). But also old people with old people and Catholics with Catholics. This leads to more trust among neighbors in the more homogeneous community.

And the effects on the neighborhood encompass relations among everyone. It seems that just being in a heterogeneous neighborhood reduces trust overall so we even trust people very similar to us less when we live among a diverse group. This difference in trust has broader implications. Trust leads to greater social capital, which increases the overall success and welfare of the community. Less crime, higher income growth, and overall community success. And when you look in detail at the research that shows that diverse teams make better decisions, it turns out that demographics is one of least effective kinds of diversity. Differences in experience, personality, approaches, and thinking styles are all more important. So taken together, demographically homogeneous groups will be more successful in the long run.

Where Dr. Putnam got worried is that this suggests we should stop integrating neighborhoods, schools, companies, and the country at large. Even immigration policy should be affected in countries that are still largely homogenous, such as Scandinavia. This was counter to everything he believed in from a more ethical point of view. Again, the ethics is a topic for a later post.

There is also research that shows smarter people build more social capital, regardless of demographics. So perhaps the solution is to make sure we surround ourselves with smart people. Then we can be integrated. Of course, we quickly bang up against the limitation that not everyone is endowed with the gift of superior smarts. We could try to use immigration policy to let in lots of demographically diverse smart people (which is a good policy for all sorts of reasons). But we would also have to limit immigration for the other half of the curve – another illiberal policy.

So what is the answer to this conundrum? For ethnic and racial differences, maybe all we really need to do is wait a few generations. With the rapid increase in inter-racial mixing, pretty soon there won’t be such big differences among us. I see this in Miami to an extent I never would have dreamed years ago. Almost every couple in the city is mixed in some way. Then we just need to find better ways to communicate between genders and age groups. This is easier than with race and ethnicity because of course we grow up in families that have all different ages and genders so we get more used to it at ages when we are still malleable.

Until then . . . . Let’s just work hard on open communication and trust, even when your gut is not so sure.

Monday, August 17, 2009

Doing the right thing?

I have been reading a lot of research lately that are in different domains but have one common finding that seems to appear over and over again. When we do something that makes us feel virtuous, we feel entitled to go out and do something less virtuous afterwards. Sometimes this is harmless but other times it can be really serious.

A harmless example: When you eat something healthy, you are more likely to eat something unhealthy afterwards. So for example, research shows that when you select a healthy main course from a menu, you are more likely to order unhealthy sides, drinks and desserts with it. You are also more likely to eat unhealthy food in later meals. The problem here is that in the end, you wind up eating more calories at the end of the day then if you selected something neutral in the first place.

Another harmless example: When grocery shopping, when you put a healthy food in your cart, you are more likely to go to the less healthy food aisles and put unhealthy food into your cart. So for every apple you buy, you also get the Oreos.

But then there are the serious examples. Another study gave people ethics scenarios and had multiple choice answers for what the person would do. If they answered ethically for question A, they were more likely to answer unethically for question B. They mixed up the order of the questions for each person to cancel out the differences in the scenarios. So it seems that acting ethically makes you feel like an ethical person – like ethicality is your true nature. So then, you can act unethically and it doesn’t count because it’s not your nature it’s just a choice you made.

The same thing happened when people gave to charity. They were more likely to do unethical things afterwards. Apparently, giving to charity makes you feel like you are a “good” person. So now, you can do whatever you want. I suspect Bernie Madoff had a lot of this in him.

Some of these happen in the reverse also. When people started out behaving unethically, they were more likely to do an ethical thing later. Apparently, they felt bad about themselves and had to make up for it. They tried to see the original unethical act as the “choice” and the later ethical act as their “true nature.”

I am sure that there are some people who don't take advantage of this balancing game and are virtuous all the time. But what bothers me is that this is largely unconscious (the subjects of the studies didn't realize they were doing this). And it is so easy too. All you need to do is one virtuous thing up front, and then you can keep doing less virtuous things forever, always thinking about the virtuous thing as your "true nature" and rationalizing the rest. The human brain is set up to facilitate this kind of behavior, so it is much more common than you might think.

Most of the people reading this do it without even realizing. Even you!

Thursday, August 13, 2009

Calorie listings on menus work

I just read a some follow-up research to the study I blogged about earlier. These researchers looked at what happens when you put nutritional information on the menu. They found it to be effective in several ways:

  • When the calories listed were high, it increased the customer’s expectations that they would gain weight and/or get weight-related disease. This may seem obvious, but they compared it to a menu condition with a label of “low calorie” and a menu condition with the ingredients listed. These could have had the same effect, but didn’t.
  • When customers discovered that their food had more calories than they expected, they ate less over the course of the day to compensate. So the calorie listings had real effects on behavior, not just perceptions or expectations. This is important because we often see people say they will do the healthy thing “later” but then don’t. With menus that list calories, there is a real behavior change.
  • Customers that had intentions to eat right rated the menu items lower when they had higher calories. But other customers didn’t change their ratings at all. But they did eat less later.
So what does this tell us? Basically, it means that menus really should have at least the total calories listed. It may be too much to have other things (fat, saturated fat, sodium, sugar, etc) even though these would help people with specific health issues like diabetes. But because research has also found that people have high perceived correlations among food attributes (when we think something has lots of calories, we also think it has lots of the other bad stuff and vice versa), people with these conditions would stay away from menu items even if they are just listed as high calorie. The sacrifice here is that some foods are high calorie but are really healthy otherwise (e.g. almonds). But on most menus I have seem, usually the perceived correlations are right on target. The hamburger where they add butter to the bun, oil to the meat, and then stack on a few extra slices of cheese and “special sauce” is more likely.

Wednesday, August 12, 2009

Eating in restaurants

I read some very fascinating research from INSEAD and Cornell Universities. To briefly highlight some of their findings:

  • we significantly underestimate the number of calories in food we order in restaurants, even if we see the list of ingredients and even after we eat it. In one example, a 1000-calorie Subway sandwich was perceived as having only 585 calories.
  • this underestimation is even larger for restaurants that have a brand image that promotes healthy food. The 1000-calorie McDonalds burger was perceived as having 750 calories – closer to the truth (although still pretty far off).
  • when we order main dishes that we think are healthy, we are more likely to order less healthy sides, drinks, and desserts. Subway customers ordered sides with twice the calories as the McDonalds customers.
  • these errors compound with each other: “Good Karma Healthy Foods” customers estimated that their “famous classic Italian sandwich” had 409 calories and were then more likely to order chips with it than customers ordering the same sandwich at “Jim’s Hearty Sandwiches” which they thought had 622 calories. So they thought they were eating less at Good Karma, but were actually eating more.

So when you put these four results together, you can conclude that people are even more likely to gain weight from eating at “healthy” restaurants than at standard restaurants. It’s that large soda and small-looking cookie that get you. Ouch!! They found the same result with customers who said they were trying to eat healthfully. Healthy eaters also underestimated calories and ate more sides and drinks in general, and even worse at “healthy” restaurants.

This is even more evidence that we need to have nutritional information on menus. Food descriptions are just not enough to allow us to make informed decisions. It is too easy for restaurants to generate a “healthy” brand image with images of salads and lean meats and then make it taste incredible with a slathering of butter. We will never know what we are eating and obesity will just get worse.

And for personal advice, next time you are ordering in a restaurant – just assume the meal has several hundred calories more than you think. And just because you are at a restaurant that bills itself as “healthy” doesn’t mean that everything (or even anything) on the menu is actually healthy.

Tuesday, July 28, 2009

How rational is irrational?

Behavioral economics bills itself as an alternative to the standard economics approach which assumes people make decisions rationally. Behavioral econ doesn’t say we are totally irrational, it just shows that the devil is in the details.

Let me illustrate with one of my favorite topics – the obesity epidemic. The rational economic model describes the decision thusly (I love that word :-D): When Joe is deciding whether to eat the jelly donut or to go for a jog, he evaluates the various tradeoffs (gain the pleasure of eating the donut along with the cost of extra weight or gain the advantage of losing weight along with the cost of jogging) and decides accordingly. Free will and the free market allow him to make the decision that best meets his priorities. All is good.

The behavioral economic model describes it somewhat differently. Joe figures he can get the best of both worlds by eating the donut now (gain the pleasure of the donut) and starting his diet tomorrow (gain the advantage of losing weight). But then tomorrow he is faced with the same decision, and can put off the diet for “just one more day.”

The problem is twofold. What seems like an obvious hypocrisy is made possible by the fact that there are two different parts of the brain that make these decisions without coordinating with each other. One part of the brain makes decisions about what to do right now (a more instinctive, emotional center that is dominated by sensory experience). This brain wants the donut.

A different part of the brain decides what to do in the future (a more analytical center that can delay gratification for higher level objectives like health). This brain agrees to jog.

The way the two brains resolve their disagreement is to eat the donut now and agree to jog tomorrow. It’s like two different people.

The second part of the problem is that the decision making process is recursive. The next day when we are supposed to go for the jog that our logical brain promised, our emotional brain takes over (because it is again a "now" decision) and says “hey, I never promised nothin’.” And our logical brain is limited to complaining about the irresponsible emotional brain and again promising what to jog “next time.”

Behavioral economics recognizes that this can go on forever, even with the best of intentions. The solution is to add some emotional component to the process that favors the long term benefits. So for example with 401(k)s, we can counteract the emotional brain’s desire to enjoy our money NOW by making it a real pain to opt-out of contributing to the 401(k). Stickk.com makes us give money to charity (which is emotionally painful, especially when you give it to an organization you DISAGREE with) every time we eat a donut. These are artificial situations, but they can be effective by recruiting the emotional brain to help us do what our logical brain knows is best.

Saturday, July 25, 2009

Youth Sports is an Arms Race

This is a great article for anyone who has kids that play youth sports or who is interested in behavioral science. I love analogies that tie together seemingly disparate situations (although the analogy on NPR earlier this week comparing rappers to geopolitics was a bit of a stretch).

But in addition to the basic premise, what do you think about the statement:
“It's crucial to recognize the difference between intensive athletic practices and something like studying. Competitive athletic success is a zero sum game. There will be the same number of major league players making the same salaries if everyone in the world became twice as good at playing baseball.

Studying, on the other hand, makes people smarter, more educated and more productive. And that makes your life better, regardless of what everyone else is doing. Economic productivity is not a zero sum game. If we all became twice as smart, we would all be richer, healthier, safer and so on.”
Is it true? I think there also are positive externalities of athletic training. Not just better fitness, but the ability to practice intensely also transfers (read Talent is Overrated for more on this). Or the ability to be a team player (although does this get better or worse if you are intensely competitive in sports?).

More questions than answers. My favorite kind of reading!!

Saturday, July 18, 2009

Can we trust customer service?

I recently did some business with a British publisher who offered me a choice of £50 ($80) or a book up to £150 in value as compensation. I don’t often buy books that cost more than $80, so I figured I should take the cash. But just in case, I contacted my bank (Wachovia) to see what the service fee would be to deposit a check in pounds. They told me that as long as the currency of the bank matched its nationality (both are British), then there is no extra fee. I knew they would hit me on the conversion rate, but cash still gave me the best deal. So I took the cash.

This morning, I went to the bank to deposit the check (first time I used a human teller in years!!). The teller told me that because it was a foreign check, it had to go to collections. This has a $75 fee and a week or two delay. And given the conversion rate hit of 7 cents/pound, I would only get $3. Needless to say, I was a bit angry. For $3, I would taken the book. Or I would not have done the work in the first place.

Given enough complaining, any major company will waive a fee like this, so I got to keep the $78. But I have now lost faith that contacting customer service to check on fees in advance works. If people want to sign up for a credit card, get a loan, or whatever, how can you make good decisions if you can’t trust the information they give you? Do I need to get official letters on company letterhead signed by the “VP of whatever” every time I want to engage in some kind of transaction? Just the frictional costs of this requirement could add up to a real pain.

Has anyone else experienced something like this, or is it rare?

Can we trust reviews and ratings??

I am reading a book on applying brain science to management. I am only on chapter 3, but so far the book really stinks. I will write a review to warn you about it somewhere else. The topic of my post today is on social networking and reputation management systems (ratings and reviews).

The book got some fantastic reviews from brain scientists who seem to have good credentials. Maybe they liked the book, but so far it’s such a trivialization and oversimplification of brain science I just can’t imagine they did. Could they have done it for the social networking benefits – getting their reviews out there and read? Is this so valuable that it would be worth exaggerating the value of the content you are reviewing – especially since most readers probably don’t know enough about brain science to realize how bad the book really is? Here’s a paradox – if writing reviews is valuable in and of itself, we may not be able to trust them because people will be writing them just to get the reviews listed. And when reading reviews isn’t valuable anymore, writing them will not be either. So the more we value reviews now, the less we will be able to use them in the future.

Here is another reputation management question. The book references some of the world’s leading brain science researchers. But these are not the people whose reviews are shown. If they were, I think I would be second guessing my own opinion instead of the reviewer’s honesty. How do we judge the quality of a reviewer? Are rate the rater systems (e.g. 90% of customers rate this reviewer’s reviews as 4 or 5 stars) helpful? Or do you want to see a bio (maybe not for reviewing music, but for technology?)?

I am starting a research project to look into these questions, so any thoughts would be greatly appreciated.

Friday, July 17, 2009

Why we may never solve the obesity crisis

Ezra Klein shares a story that is all too true for many of us. When we are eating out, we have no clue what the fat or calorie content is of the dishes on the menu. Not only that, the dishes that sound like good choices may turn out to be the worst ones. He writes (about the Cheesecake Factory menu):
On first glance, I would have figure the salmon for the lightest entree, followed by the chicken piccata, the carbonara, and the crispy beef. Not so. The salmon weighs in at 1,673 calories -- which is to say, a bit more than 75 percent of the food an adult male should eat in a day. The piccata is a comparably slim 1,385 calories. The crispy beef is 1,528 calories. And the carbonara? 2,191. The answer might be that someone looking for a healthful meal shouldn't go to the Cheesecake Factory. But insofar as you're already there, or your family wants to go there, making a good decision isn't a particularly straightforward proposition.
The problem here is threefold. Cheesecake creates their dishes with the intention of maximizing taste. And fat, sugar, and calories taste GOOD!! This is America and we have the right to eat whatever we want, even if it blows up our waistline (and our healthcare bills). So I would not want any regulations that prevent Cheesecake from serving up these dishes. But the other two problems are more worthy of attention.

First, if anyone wants to make a more healthful choice, they should have the information to do so. Again, this is America and we have that right. So either the descriptions need to give eaters a better idea of what’s in the dish or we need to require nutritional information on the menu (like several cities are already starting to do). You are free to ignore it if you want to, but it should be there for people who want it, or especially for people who need it for health reasons (diabetics, medically obese, etc).

Second, the costs of treating obesity-related disease is often covered by other people, either through Medicare/Medicaid or through shared insurance risk pools. If we have a new “public option” in the Obama plan, that would increase shared costs even further. I am OK if you want to overeat and get obese, but don’t make ME pay for the resulting medical care. Some company health plans are starting to offer discounts for people who are fit. But we need a way to make this more systematic to make it societally acceptable.

In essence, it comes down to what it always comes down to. We should have the freedom to make bad choices if we want to (smoking, eating, etc). But this freedom is taken away from us if we don’t have the information we need to evaluate the costs and benefits of our choices. We deserve both kinds of freedom.

And as soon as there are externalities (shared health costs, second hand smoke) on other people, we are infringing on THEIR rights. So we need mechanisms to either eliminate the externality or a payment system that compensates for it.

Tuesday, July 14, 2009

In-your-face TV news

I am very interested in the concept of decision making bias and polarization. The challenge is that we focus on ideas that we agree with much more than those we disagree with. The result is that we learn more and become more confident in our previous opinions whether they are right or wrong. This is of course an overgeneralization, but it happens much more than we would like to admit. I just read a study that looked at the effects of in-your-face TV news. You know the ones – one person from each side of a debate argue back and forth, uncivilly, and with lots of close-up camera shots to magnify the heat of the argument.

This is a long excerpt, but I think worth reading (the article is by Diana Mutz in the 11/2007 issue of American Political Science Review):

Incivility alone does not dampen enthusiasm for political advocates nor the arguments they make. However, when uncivil discourse and close-up camera perspectives combine to produce the unique “in-your-face” perspective, then the high levels of arousal and attention come at the cost of lowering regard for the other side. The “in-your-face” intimacy of uncivil political discourse on television discourages the kind of mutual respect that might sustain perceptions of a legitimate opposition. Here the pattern of findings is quite consistent; close-up perspectives on uncivil discourse routinely damage perceptions of the candidates and issue arguments that subjects are already prone to dislike; that is, attitudes toward the least-liked candidate, and the perceived legitimacy of rationales for opposing issue positions.

When we lose respect for the experts/politicians on the other side of the argument, we are less likely to really listen to what they say. It becomes that much harder to change our minds in the face of counter evidence. It’s no wonder that our politicians can never agree on anything. Are they even listening to each other any more?

Interacting with brands on social networks

An article in yesterday’s Advertising Age discussed a survey of people who had used social networking sites at least once a month and developed basic demographic and psychographic profiles. The article was not very insightful (Myspace users are younger, LinkedIn users are richer), but one subject got me thinking.

Half of us have “friended” or become a fan of a brand. Just under 20% react positively when they see brands on our social networks and about the same react negatively. 20% of us want more communication from brands and 35% want less.

Why did this part get me thinking? Because as usual, the real answer is that “it depends.” General questions like this are pretty useless. If Hershey’s wants to contact me with a free sample, then I will want more communication and react positively. If they put up some inane ad, then I want less and react negatively. Since this is an Advertising Age article, what they should talk about is how the brands can craft their communications to fit into the positive categories and avoid the negative ones. Like this newly viral video that is really an Evian ad.

Friday, July 10, 2009

Compared to your neighbors

This is really important so please think hard. What would you do if you got an insert in your electricity bill praising you for using 10% less electricity than your neighbors? What if it criticized you for using 10% more? In Sacramento, it decreased total electricity use by 2%. This sounds small (so it means it doesn’t really impact peoples’ lifestyle), but in terms of cost for the utility (not having to build more power plants) and reducing global climate change, the impact can be huge.

Soon, people in California, Washington, Minnesota, Illinois, and New York will be getting these notices. It’s Behavioral Economics in action. Then the next step is to apply this to your water bill. And then . . . . well, I don’t know what comes after that. But this is the basic idea of Sunstein and Thaler’s concept of paternalistic libertarianism. Don’t force people to do things, just give them information that helps them make the right decision and then create a process that makes the right decision easy (like making a max donation to your 401(k) the default option and then allowing people who want to to reduce it, instead of the opposite which we have now).

How much would you improve about your life if it were easier? And if your neighbors were informed? And if you got community recognition from them for doing the right thing? I wonder what else we can change about our society . . . . .

Thursday, July 02, 2009

Design solves problems

In many cases, design is all about making a product look good. It also has to be functional. But sometimes, design can solve systemic problems that go beyond the product itself. If designers understand the context in which their design will be used, it is amazing what design can solve.

Here is an example.

In Nepal, airport personnel have a bad habit of accepting bribes. Nepal decided it would easier to use a design solution than a regulatory or police solution. They simply redesigned the airport uniforms so they don’t have pockets. If they don't have a place to put the money, they can't accept it. A simple solution that shows the elegance of design.

its easy to fool ourselves, even when our life depends on it.

Great example of confirmation bias yesterday on NPR. A small town in Texas has been receiving tons of money in royalties from a natural gas company that is drilling the Barnett shale. They are getting up to tens of thousands of dollars per person per MONTH!!

In June, they experienced the first earthquake EVER in the recorded history of this region. Then another. Then another. Six so far in just one month. If it weren’t for the royalty checks, I am sure that the townspeople would have jumped to the conclusion that the drilling is causing them. But because the drilling is their golden egg, they have jumped to the conclusion that it can’t be the drilling. Or that the earthquakes are too small to matter.

Either way, the townspeople are making decisions based on no real information. The interesting thing is how easy an unrelated fact (the payments) is impacted their cognitive processes. I don’t think that they are consciously deluding themselves. I think this is a natural manifestation of what cognitive science has known about for years. Cognition is not a logical process. We often start out with the answer we want and then collect and interpret information to fit that answer. And this is unconscious, so it’s insidiously hard to overcome.

Hurray for Simplicity !!

Hurray for simplicity.

One of my favorite authors, Nassim Taleb, just posted an excerpt from a book that really caught my attention. It’s a small excerpt that tells a story about a statistician who tried to prove that statistical short cuts were costing businesses a bundle. He wanted to prove that companies should use state of the art extensive econometric models. Horror of horrors, he found out that the simple methods actually worked better.

Hurray for simplicity !!

Tuesday, June 30, 2009

DC Metro crash and the financial crisis

Yesterday’s Washington Post had a great article on the DC metro accident. It highlights a very important limitation of automation that we have studied in the Human Factors field for decades, but few people probably recognize. And they quote three human factors specialists too, so it’s a great plug for us :-D.

The point is that people have a certain unconscious cost/benefit analysis that underlies what they pay attention to. So when you make automation better, people can rely on it more and pay attention to it less. But then when the automation finally does fail, it fails BIG because no one was watching. It’s actually the same thing that happened with the financial industry. We relied on the banks’ ability to judge risk, so we deregulated them at the government level and trusted them more at the consumer level. No one was watching, so when they finally did fail, they failed BIG.

So what changes is not the cost/benefit ratio, but rather the likelihoods. Instead of small costs at a high frequency, we have large costs at a low frequency. Is this better? I don’t know but it is more palatable to human nature. Just read Nassim Taleb’s great book to see why.

The conclusion that everyone should realize is that this is not something that we can fix with short term design changes (DC Metro) or regulations (banking industry). Because if we make the systems more reliable, we will increase the time between failures, but also increase the size of the failures when they do happen. I’m not sure this is better. A more effective solution is a fundamental change in the system, but of course this is much harder.

And the other thing we know about human nature is that we rarely take the harder path.

Monday, May 25, 2009

Milk is the new gateway drug

Tennessee Representative Steve Cohen made a comment (sarcastic I think) that illustrates one of the most common decision making errors - correlation is not causation. People call marijuana a gateway drug because people who use cocaine or other hard drugs often did marijuana first. But because they used it first (correlation), doesn't mean the use of marijuana CAUSED the hard drug use. If that were the case, then milk (up to age 8?) would be a gateway drug to juice (ages 5-12?), which would lead to soda (10-15), then to marijuana or maybe beer (I'm not sure which is easier to get in high school now) and then on to hard drugs. Maybe I should start this chain at infant formula?

Because legalization or at least decriminalization of marijuana has so many good features (for example), it would be nice to know for sure if it is or if it isn't. But with so many studies in both directions, it is impossible for anyone to know for sure. If someone tells you they know, they are succumbing to some other decision making fallacy (Read this to know more about DM fallacies. Great book and a quick read. But it will scare you about your own ability.).

I would like to see the same approach to this that we are taking in several other areas. Let's encourage a few states to decriminalize, with perhaps a 3-5 year sunset provision. Then we can see what happens. It won't be a perfectly controlled scientific study, because people will cross state lines to get it and other confounding factors. But I suspect we would still learn a lot. And on the off chance that it really does significantly reduce organized crime, overcrowded prisons, and other possible benefits - WOW.

Thursday, May 21, 2009

Kelloggs customer service???

I recently sent an email to Kelloggs customer service notifying them that a box of Corn Flakes I recently bought had zero taste and that I wanted a refund. Their response could have taken two approaches:

What they did:

Their response basically informed me that they disagree with my assessment because their QA department has determined that Kelloggs quality is consistently the best among corn flakes. This does two things. It discourages me from trying Kelloggs again because their claim is that my box tasted the way Kelloggs ALWAYS does. And they also insulted my sense of taste.

What they COULD have done:

Instead, they could have said that their QA department has determined that Kelloggs is meets is quality benchmark 99.9% of the time and when it does, it is the best tasting. Then they could have thanked me for identifying the bad batch and that they would look into it. This would have done two different things. It would have encouraged me to try Kelloggs again because what are the chances that I would get a bad batch twice. It would also have complimented me on my discerning taste to notice the difference and my initiative to notify them.

I'm no expert in marketing, but this seems like a no brainer. Unless they don't WANT me as a customer. You think????

Tuesday, May 05, 2009

Avoiding the long line at the bar

There is a bar in Amsterdam that has solved the problem of long lines at the bar. They have incorporated minibars all along a huge wall. Each minibar has a selection of drinks so you can pick out whatever you like. You have to leave your drivers license with the concierge in exchange for they key so that they can charge you at the end. They also have snack minibars. I can't say if the prices are competitive because I don't know what regular bars charge in Amsterdam, but beer is EU 3.50, wine is EU 5.50, and liquors range from EU 4.20 to 6.50.

Interesting idea in customer service innovation. It follows the growing do it yourself trend (e.g. online airport check-in, pay at the pump gas). People like control and are willing to serve themselves if it saves time or money.

Monday, April 20, 2009

Invisible Hand v Irrational Hand

This is better than Alien v Predator. In one corner we have Adam Smith's invisible hand. He says that when each of us pursue our self-interest, the aggregate will promote the general welfare. Although we are all selfish, by pulling in opposite directions we cancel each other out.

In the other corner we have Dan Ariely's (and many others) behavioral economics research that shows that we are all quite irrational in our decision making. This creates cascades that pull the aggregate way out of balance. The recent stock market bubbles and real estate bubble are pretty good evidence too.

Adam Smith's invisible hand is also challenged by the problem of asymmetric information. When some people have better information than others, they can exploit their advantage in the market.

If the Irrational Hand is stronger than the Invisible Hand, we need some kind of oversight (not necessarily government) to help out. The problem we have had over the years is that our regulations have been equally biased and irrational, so they don't help as much as they could and certainly don't SOLVE the problem. Maybe we need to elect fewer lawyers and former lobbyists and more behavioral economists.

Saturday, April 18, 2009

Religion makes you who you are, but maybe not how you think.

There is some fascinating neurological research being done by Andrew Newberg on the effects of religious thought on the wiring of the brain. What he has found is a great argument for the power of top down processing.

If you believe in a loving G-d, these thoughts build up the connections in your frontal lobes and anterior cingulate. This is where reason and empathy reside. So this belief can make you more rational and more empathic. But a belief in a vengeful G-d builds up connections in your limbic system where emotions like aggression and fear reside. So this belief can make you more aggressive and afraid. By building up connections in the brain, these effects can create positive reinforcement loops. Belief in a benevolent G-d makes you into the kind of person more likely to see good in things and people, strengthening these brain areas still further in a virtuous cycle. Belief in a vengeful G-d has the opposite effect in a vicious cycle.

These findings can easily be extrapolated beyond religion. People who have positive or negative beliefs about the external world in general probably experience similar neurological effects. In essence, it illustrates the power of positive or negative thinking in general. This is not some new age psychobabble. Our outlook on life can actually create the life that we want to some extent by wiring our brains to see it that way and guide our experiences to make it so.