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.
Monday, May 25, 2009
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????
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.
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.
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.
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.
Wednesday, March 25, 2009
Understanding Laziness
One of the benefits of studying human performance is that we develop insights into our everyday behavior too. This is a great example.
Laziness is more complicated than you may think. Instinctively, you may assume that laziness means doing a task in the way that takes the least amount of time. Or the least amount of physical effort. But its often not the case. A kind of effort that often trumps time and physical effort is mental effort. In other words, people often take the long way, which takes more time and more effort, to avoid thinking too hard. We get into ruts that we know are not efficient, but its better than thinking to find a quicker alternative.
Driving down a crowded highway, you could avoid traffic by finding a detour. But we rarely do this. One of the reasons GPS devices fail is that they don't convince you to follow alternate routes.
Software is frequently guilty of this. Most of us don't use 90% of the functionality of our office productivity software (word processing, spreadsheets) because we are too cognitively lazy to figure it out, even if it could save us a lot of time to use advanced functions and feature.
This morning, I had a choice of walking across my office to get a CD backup of a paper or going to the company network backup. I knew that the network was running slow, so it would take several minutes (compared to just a few seconds to walk across the room). But I couldn't build up the motivation to get up off my chair.
Of course, a few minutes later I needed some coffee. If I could have downloaded some, I would have. But unfortunately, I had to walk 20 feet. And then back again!!!
Laziness is more complicated than you may think. Instinctively, you may assume that laziness means doing a task in the way that takes the least amount of time. Or the least amount of physical effort. But its often not the case. A kind of effort that often trumps time and physical effort is mental effort. In other words, people often take the long way, which takes more time and more effort, to avoid thinking too hard. We get into ruts that we know are not efficient, but its better than thinking to find a quicker alternative.
Driving down a crowded highway, you could avoid traffic by finding a detour. But we rarely do this. One of the reasons GPS devices fail is that they don't convince you to follow alternate routes.
Software is frequently guilty of this. Most of us don't use 90% of the functionality of our office productivity software (word processing, spreadsheets) because we are too cognitively lazy to figure it out, even if it could save us a lot of time to use advanced functions and feature.
This morning, I had a choice of walking across my office to get a CD backup of a paper or going to the company network backup. I knew that the network was running slow, so it would take several minutes (compared to just a few seconds to walk across the room). But I couldn't build up the motivation to get up off my chair.
Of course, a few minutes later I needed some coffee. If I could have downloaded some, I would have. But unfortunately, I had to walk 20 feet. And then back again!!!
Saturday, February 07, 2009
Dumb car design blunders
This has me really wondering. Its a short article outlining nine blunders that the major car brands made in designing their cockpits. Some of them are so obvious that I can't imagine a halfway decent human factors analysis could have uncovered them and saved the companies millions in redesigns, lost sales, and possible lawsuits when they cause someone to crash. They range from simple ergonomic issues like a handbrake that bruises anyone taller than 5'8" to a touch screen on the dashboard that requires taking your eyes off the road for several consecutive seconds to use.
Duh.
Duh.
User Requirements through Edge Cases
One of the hardest stages of the design process is to understand user requirements. Part of the difficulty is that it starts out easy. The requirements for someone to use a cell phone are making a call, checking voice mail, caller ID, call waiting, call forwarding, and a long list of functions that every cell phone supports. The challenge is to implement these features in a way that is not just easy for users but also satisfies the “edge cases.” Edge cases are the less common scenarios that really separate good designs from average ones. They are worth pursuing because they differentiate your product from the competition and give customers a reason to choose your product.
Take for example a simple function on a cell phone – the clock. I am sure every cell phone has one. But there are differences that make some better than others, especially for the edge cases. In a previous post, I described my recent switch from a Motorola cell phone to a Sony Ericsson one. They implement the clock function very differently. The Motorola always had the clock visible as long as the phone was on, even in standby mode. I stopped wearing a watch because I always had this with me. I even used when teaching classes when there wasn’t a wall clock in the room. I just put the phone (on silent of course) on the table and all I had to do was walk by and I could see the clock.
But on my Sony, you have to push a button or open the flip to get the clock to appear. This is distracting to my students because they think I am checking my phone. The same problem happens in business meetings. I don’t know how many people have needs like this, but it’s got to be substantial. I don’t even know if I would call this an edge case, just a regular use case. I think Sony made this decision to maximize battery life. But at least make it an option. I could keep the clock visible during classes and meetings and then back to the original mode at other times.
They got the basic function right – the phone has a clock. But they didn’t look into the use cases that would make the clock more useful.
Wednesday, January 21, 2009
Decision Making Bias
You know by now that decision making biases are one of the centerpieces of my academic research and my consulting. So it was great to read about a series of studies that changed my mind about something I thought I knew pretty darn well. It was also good to see that I still have an open mind.
Confirmation bias happens when we have an opinion about something as big as whether the death penalty works or as small as which team to pick in tonight's basketball game. When there is mixed evidence, there is a slew of research that shows the evidence that supports our first impression has a much bigger impact on our final decision then the evidence that contradicts it.
But what I learned from these studies is about how this happens. I always thought it was because we ignored the contradictory evidence and focused on the confirming evidence. But it turns out to be just the opposite.
In a study of football betting, they found that when people win a bet they don't think about it much at all. They just chalk it up to being smart about football. The subjects thought things like "Of course they won. I knew the quarterback would pull them through." And then they move on.
But when they lose, they think about it in much more detail to explain the error. They think things like "Well, they only lost because of that bad call in the second quarter. And because the receiver dropped that easy pass. Otherwise they would have won and I would have been right." So instead of counting it as a bad bet, they count it as a bet they "should have won." There are two possible outcomes of a bet. Either you are right, or you were right but had bad luck. Either way, the outcome supports whatever process you used to pick the winner.
The same thing happened in a study of people's views on the death penalty. They had subjects read two articles about the death penalty. One with evidence that supports it and one with evidence against. Both articles had some flaws, but an equal number in each one. What happened was that when people read the article they agreed with, they just skimmed it and added a mental check mark in their opinion that they were right. They didn't notice the flaws. But when they read the opposing article they scrutinized it very carefully to find flaws and of course found them. So they discounted that article. In the end, supporters and opposers of the death penalty ended up with stronger beliefs of their prior opinion after reading the same two studies.
So the basis of confirmation bias is not necessarily that we ignore contradictory evidence. Instead, we work very hard to prove it wrong. If you want to be a convincing person, the best thing to do is keep details to yourself and don't reveal any ammunition to discredit you. The adage that "It's better to be quiet and be thought a fool then to open your mouth and remove all doubt" seems to be supported by the evidence.
Confirmation bias happens when we have an opinion about something as big as whether the death penalty works or as small as which team to pick in tonight's basketball game. When there is mixed evidence, there is a slew of research that shows the evidence that supports our first impression has a much bigger impact on our final decision then the evidence that contradicts it.
But what I learned from these studies is about how this happens. I always thought it was because we ignored the contradictory evidence and focused on the confirming evidence. But it turns out to be just the opposite.
In a study of football betting, they found that when people win a bet they don't think about it much at all. They just chalk it up to being smart about football. The subjects thought things like "Of course they won. I knew the quarterback would pull them through." And then they move on.
But when they lose, they think about it in much more detail to explain the error. They think things like "Well, they only lost because of that bad call in the second quarter. And because the receiver dropped that easy pass. Otherwise they would have won and I would have been right." So instead of counting it as a bad bet, they count it as a bet they "should have won." There are two possible outcomes of a bet. Either you are right, or you were right but had bad luck. Either way, the outcome supports whatever process you used to pick the winner.
The same thing happened in a study of people's views on the death penalty. They had subjects read two articles about the death penalty. One with evidence that supports it and one with evidence against. Both articles had some flaws, but an equal number in each one. What happened was that when people read the article they agreed with, they just skimmed it and added a mental check mark in their opinion that they were right. They didn't notice the flaws. But when they read the opposing article they scrutinized it very carefully to find flaws and of course found them. So they discounted that article. In the end, supporters and opposers of the death penalty ended up with stronger beliefs of their prior opinion after reading the same two studies.
So the basis of confirmation bias is not necessarily that we ignore contradictory evidence. Instead, we work very hard to prove it wrong. If you want to be a convincing person, the best thing to do is keep details to yourself and don't reveal any ammunition to discredit you. The adage that "It's better to be quiet and be thought a fool then to open your mouth and remove all doubt" seems to be supported by the evidence.
Monday, January 19, 2009
the yogi Lord Shiva knew his human factors
A saw a quote attributed to the great yogi Lord Shiva by Deepak Chopra: “I use memories, but I do not allow memories to use me.”
This is a great example of good human factors. We know that there are many decision making biases that are caused by our memories "using us." Two of these are salience bias and recency bias. When something is easily called to mind we greatly overestimate its prevalence. Things are easily called to mind when they are sensorily salient (strong sensory experience), semantically salient (had a large impact on us) or when they are recent. But our brains incorrectly assume that if it is easily brought to mind, it must be a frequent occurrence. There are many examples of these effects steering us wrong.
Another memory-related bias is the representativeness bias. When something looks like a good example of something, we assume it must be a likely case. I am reading the book "How we know what isn't so" that proves hot and cold shooting streaks in basketball are really just a figment of our imagination. The author cites a significant body of research in his proof. But when we see a player hit 3 or 4 in a row, we just "know" he is hot because this "looks" like a streak.
Deepak Chopra's solution is pretty good too. Its kind of long, but in essence he says "Be a witness to your thoughts, your moods, your reactions, your behaviors. They represent your
memories of the past, and by witnessing them in the present, you liberate yourself of the past. By observing your addictive behaviors, you observe your conditioning. And when you observe your conditioning, you are free of it, because you are not your conditioning; you are the observer of your conditioning."
From a human factors perspective the idea is to consider the memories that are telling you something is true or false, and evaluate whether they are really frequent or proof or if they are just salient and easily recalled. If we do this consciously, we can avoid many common errors.
But I am still disappointed that basketball streaks aren't real. Maybe I will choose to keep believing that one anyway. Who does it hurt?
This is a great example of good human factors. We know that there are many decision making biases that are caused by our memories "using us." Two of these are salience bias and recency bias. When something is easily called to mind we greatly overestimate its prevalence. Things are easily called to mind when they are sensorily salient (strong sensory experience), semantically salient (had a large impact on us) or when they are recent. But our brains incorrectly assume that if it is easily brought to mind, it must be a frequent occurrence. There are many examples of these effects steering us wrong.
Another memory-related bias is the representativeness bias. When something looks like a good example of something, we assume it must be a likely case. I am reading the book "How we know what isn't so" that proves hot and cold shooting streaks in basketball are really just a figment of our imagination. The author cites a significant body of research in his proof. But when we see a player hit 3 or 4 in a row, we just "know" he is hot because this "looks" like a streak.
Deepak Chopra's solution is pretty good too. Its kind of long, but in essence he says "Be a witness to your thoughts, your moods, your reactions, your behaviors. They represent your
memories of the past, and by witnessing them in the present, you liberate yourself of the past. By observing your addictive behaviors, you observe your conditioning. And when you observe your conditioning, you are free of it, because you are not your conditioning; you are the observer of your conditioning."
From a human factors perspective the idea is to consider the memories that are telling you something is true or false, and evaluate whether they are really frequent or proof or if they are just salient and easily recalled. If we do this consciously, we can avoid many common errors.
But I am still disappointed that basketball streaks aren't real. Maybe I will choose to keep believing that one anyway. Who does it hurt?
In Honor of MLK
In honor of MLK Day, I want to comment on his Letter from Birmingham jail. In reading his intentions, I realized that he could have used some lessons in human factors that may have improved his chances of influencing the incoming Birmingham administration.
Sunday, January 04, 2009
Joe Nocera has a great article in the NYTimes about risk and investing. Its really long, but there is one point I want to talk about because it is relevant to research and many other things as well. As a human factors professional, its an important thought.
Researchers and designers often think in terms of 95% (or 99%) confidence intervals. That is what we use as a design criterion or p-value for accepting a hypothesis. Nocera talks about it in terms of what financial firms used to evaluate their value at risk (VaR). If an investment has a 95% confidence interval of going up $25 million or going down $25 million, they worked under the assumption that these were the boundaries. But what this interval means is that 2.5% of the time, $25 million is the LEAST you can lose. No one seems to have thought of that.
Also, this creates perverse incentives, which is not only an area where I do research, but also the main reason I suspect the financial crisis arose in the first place. Basically, the financial innovators were trying to maximize the 99% confidence interval of the VaR of the securities they were creating. So it didn't matter if the security had a 0.5% chance of losing a trillion dollars, it wasn't included in the analysis (or the calculation of their bonuses). It is easy for the employee to rationalize that this could never really occur (0.5% is soooo small). And if the company was using the 99% VaR CI, then they didn't seem to care either.
For the financial industry, the solution is not regulations that prevent financial innovation. Its to make sure that the incentives are aligned for the company and for the employees.
Researchers and designers often think in terms of 95% (or 99%) confidence intervals. That is what we use as a design criterion or p-value for accepting a hypothesis. Nocera talks about it in terms of what financial firms used to evaluate their value at risk (VaR). If an investment has a 95% confidence interval of going up $25 million or going down $25 million, they worked under the assumption that these were the boundaries. But what this interval means is that 2.5% of the time, $25 million is the LEAST you can lose. No one seems to have thought of that.
Also, this creates perverse incentives, which is not only an area where I do research, but also the main reason I suspect the financial crisis arose in the first place. Basically, the financial innovators were trying to maximize the 99% confidence interval of the VaR of the securities they were creating. So it didn't matter if the security had a 0.5% chance of losing a trillion dollars, it wasn't included in the analysis (or the calculation of their bonuses). It is easy for the employee to rationalize that this could never really occur (0.5% is soooo small). And if the company was using the 99% VaR CI, then they didn't seem to care either.
For the financial industry, the solution is not regulations that prevent financial innovation. Its to make sure that the incentives are aligned for the company and for the employees.
Wednesday, December 24, 2008
Sony Ericsson cell phone
I just bought a new Sony Ericsson cell phone and my first impression is that the usability leaves a lot to be desired. And that's saying a lot considering my previous phone was 4 years old.
The problems are not learnability - everything is learnable. It just takes more steps to do everything. Accessing menus takes 1 or 2 more steps than the same things on my old Motorola. And getting out of a menu requires steps too. On my old phone, closing it did this automatically. And hanging up also requires a keypress when its on non-auto mode.
What a pain.
[update]
And there's more. There is no way to quickly put the phone on vibrate. You have to go four steps deep into the menu. Even putting it on silent requires opening the flip. This is often done under time pressure (one person's phone rings in the middle of a meeting and everyone else realizes they forgot). A basic tenet of HF is to create simple shortcuts for anything done under time pressure. Hello Sony? Anyone there?
The problems are not learnability - everything is learnable. It just takes more steps to do everything. Accessing menus takes 1 or 2 more steps than the same things on my old Motorola. And getting out of a menu requires steps too. On my old phone, closing it did this automatically. And hanging up also requires a keypress when its on non-auto mode.
What a pain.
[update]
And there's more. There is no way to quickly put the phone on vibrate. You have to go four steps deep into the menu. Even putting it on silent requires opening the flip. This is often done under time pressure (one person's phone rings in the middle of a meeting and everyone else realizes they forgot). A basic tenet of HF is to create simple shortcuts for anything done under time pressure. Hello Sony? Anyone there?
Tuesday, December 23, 2008
The Human Factors of Bernie Madoff
The Bernie Madoff scandal presents a very interesting illustration of confirmation bias (for his early investors as well as for him). I am assuming some of what went through his mind to make the point. And some is based on rumors that spread around Wall St in the 1990s about him.
In the beginning, Madoff engaged in a perfectly legal (although ethically questionable) practice of front running trades. When any large investor makes a big trade, they force up the price of what they are buying because they are sucking up the available shares. Its simple supply and demand. If they are selling, the same thing happens to force down the price. Madoff basically paid floor traders to buy shares for him ahead of large purchases or after large sales. He made a few extra points on each trade. This way, he was able to make profits that were a few points above the market. This was legal throughout the 70s and 80s. His customers got used to the great returns and were rewarded for sticking with him.
But eventually, Arthur Levitt, chairman of the SEC, was able to get this practice severely limited (although there are still loopholes from what I understand). Madoff could no longer make the gains he used to. Imagine you go from making 12% a year to only 8%. This doesn’t happen in a straight line; some months he probably made 12% (annualized) and others 5% (annualized). But each month that he made 12% his confirmation bias could convince him that he was “back on track” and that the 5% months were exceptions. But rather than disappoint his investors, he fudged a little bit what he reported to them on their statements on the assumption that he would make it up later. As long as they didn’t all try to withdraw money at the same time, this would work (if he actually got back to 12%, which he was sure he could do). Each time he had a 12% month, he was sure he was “back” and convinced him to continue the “little bit of fudging” on the statements. Since he also owned the trading operations and had an accounting firm with only one employee dedicated to him, he probably was able to convince these few people too.
For his customers, there were two types. The naïve investors didn’t really know about the frontrunning or what the probability of a consistent 12% return really was. All they knew was that he delivered. Each month, their statement showed a 12% return. There was the evidence. Maybe they heard rumors that he was doing in unethically, but it was legal so why complain. And when frontrunning became illegal, they may never have realized anything had changed. As long as their statements had a 12% (annualized) increase each month, there was no reason to question anything.
For his professional customers, they knew how he was doing it, and were happy to get the returns. And when frontrunning was limited, they figured he was exploiting the loopholes or he had found another way to game the system. After all, their statements had 12% returns. Why question it? If he was willing to be unethical in the 1970s and 1980s, of course he would do the same in the 1990s and 2000s.
Some interesting evidence for this is based on the amount of money people are claiming to have lost with him. If you give me $1 and I promise to magically turn it into $5, but instead I put it in my pocket and run away, how much did I steal from you? If you say $5, congratulations, you are a Madoff customer. Their last statement had $5 on it, so they assume that’s how much they lost. But in fact, the $5 never existed. All he really stole from them was their original $1 investment, which he never really turned into anything. I saw a couple on TV last night who had been a Madoff investor for decades. If you add up their original investment and subtract what they have withdrawn over the decades, they actually withdrew more than they invested. But their last statement said $1.65 million. So they accused Madoff of stealing the $1.65 million.
In the beginning, Madoff engaged in a perfectly legal (although ethically questionable) practice of front running trades. When any large investor makes a big trade, they force up the price of what they are buying because they are sucking up the available shares. Its simple supply and demand. If they are selling, the same thing happens to force down the price. Madoff basically paid floor traders to buy shares for him ahead of large purchases or after large sales. He made a few extra points on each trade. This way, he was able to make profits that were a few points above the market. This was legal throughout the 70s and 80s. His customers got used to the great returns and were rewarded for sticking with him.
But eventually, Arthur Levitt, chairman of the SEC, was able to get this practice severely limited (although there are still loopholes from what I understand). Madoff could no longer make the gains he used to. Imagine you go from making 12% a year to only 8%. This doesn’t happen in a straight line; some months he probably made 12% (annualized) and others 5% (annualized). But each month that he made 12% his confirmation bias could convince him that he was “back on track” and that the 5% months were exceptions. But rather than disappoint his investors, he fudged a little bit what he reported to them on their statements on the assumption that he would make it up later. As long as they didn’t all try to withdraw money at the same time, this would work (if he actually got back to 12%, which he was sure he could do). Each time he had a 12% month, he was sure he was “back” and convinced him to continue the “little bit of fudging” on the statements. Since he also owned the trading operations and had an accounting firm with only one employee dedicated to him, he probably was able to convince these few people too.
For his customers, there were two types. The naïve investors didn’t really know about the frontrunning or what the probability of a consistent 12% return really was. All they knew was that he delivered. Each month, their statement showed a 12% return. There was the evidence. Maybe they heard rumors that he was doing in unethically, but it was legal so why complain. And when frontrunning became illegal, they may never have realized anything had changed. As long as their statements had a 12% (annualized) increase each month, there was no reason to question anything.
For his professional customers, they knew how he was doing it, and were happy to get the returns. And when frontrunning was limited, they figured he was exploiting the loopholes or he had found another way to game the system. After all, their statements had 12% returns. Why question it? If he was willing to be unethical in the 1970s and 1980s, of course he would do the same in the 1990s and 2000s.
Some interesting evidence for this is based on the amount of money people are claiming to have lost with him. If you give me $1 and I promise to magically turn it into $5, but instead I put it in my pocket and run away, how much did I steal from you? If you say $5, congratulations, you are a Madoff customer. Their last statement had $5 on it, so they assume that’s how much they lost. But in fact, the $5 never existed. All he really stole from them was their original $1 investment, which he never really turned into anything. I saw a couple on TV last night who had been a Madoff investor for decades. If you add up their original investment and subtract what they have withdrawn over the decades, they actually withdrew more than they invested. But their last statement said $1.65 million. So they accused Madoff of stealing the $1.65 million.
Monday, December 01, 2008
The value of a new innovation
Amar Bhide asks in his new book (excerpt) how we estimate the value of new innovations. he describes a study that asked participants how much would they would pay to kiss the famous person (movie star, musician, athlete) of their choice? Try this for yourself. If is really hard to put a value on things that we have never done.
Part of this problem is directly related to Human Factors. What is the true need that the innovation is addressing? What is the (behavioral) cost of the current method(s) used to accomplish the goal. How much better is the innovation at doing it? How hard will it be to learn? How hard will it be to use? What side effects/interactions will there be?
There are some famous quotes that under- or over-estimate the value of new innovations. "Who would want a computer in their house?" "Subprime mortgages will allow millions of additional people to own homes." (at least until they are foreclosed on :-(.
This is one of the great challenges of HF. First, we need to understand the real needs that users have. Then we need to understand our designs and how they will be used in the real world. Unfortunately, this is so much tougher than it seems.
Part of this problem is directly related to Human Factors. What is the true need that the innovation is addressing? What is the (behavioral) cost of the current method(s) used to accomplish the goal. How much better is the innovation at doing it? How hard will it be to learn? How hard will it be to use? What side effects/interactions will there be?
There are some famous quotes that under- or over-estimate the value of new innovations. "Who would want a computer in their house?" "Subprime mortgages will allow millions of additional people to own homes." (at least until they are foreclosed on :-(.
This is one of the great challenges of HF. First, we need to understand the real needs that users have. Then we need to understand our designs and how they will be used in the real world. Unfortunately, this is so much tougher than it seems.
Friday, October 24, 2008
peer influence and safety behavior
I just read a study that found a strong mediating influence of co-worker voice on the relationship between organizational support for safety and the likelihood a worker will speak out about safety.
Basically, they found that even when a company visibly supports safety, workers only speak out when they see a hazard if their coworkers also support safety.
The implication is that all of the efforts companies make to support safety are minimized if some jerk in the workplace makes fun of you for trying to be safe. Although the study couldn't look at every variable, I bet that this effect is subtle. If a worker is unsure how his/her coworkers feel, he/she still will hesitate before speaking out. Only when the company visibly supports safety and the coworkers buy in to it will you get people speaking out when they see a hazard. This is sad, and reminds me of recess in junior high. But its the way our world works I guess.
Basically, they found that even when a company visibly supports safety, workers only speak out when they see a hazard if their coworkers also support safety.
The implication is that all of the efforts companies make to support safety are minimized if some jerk in the workplace makes fun of you for trying to be safe. Although the study couldn't look at every variable, I bet that this effect is subtle. If a worker is unsure how his/her coworkers feel, he/she still will hesitate before speaking out. Only when the company visibly supports safety and the coworkers buy in to it will you get people speaking out when they see a hazard. This is sad, and reminds me of recess in junior high. But its the way our world works I guess.
Thursday, October 23, 2008
Erasing memories
Scientists at the Medical College of Georgia just found a protein that can help erase selected memories in mice. After the protein is injected in the mouse, they have the mouse recall the memory, and then after a consolidation period the memory is gone. Related memories don't seem to be affected, so they conclude that only the targeted memory is erased.
In the cognitive model that I use, this can be explained by postulating that the connections composing the target memory schema's composite cell assembly connections are weakened enough so that they don't reach threshold during normal activity. But the related memories are intact because those connections have a different combination of cell assemblies. So while some are weakened, there is enough strength left that the total schema can still reach threshold during normal activity.
But here is the key question. What long term effects would there be during normal and extreme situations for humans? Weakening of the target memory connections, even if they don't erase related memories, would weaken them. This would make them less likely to activate during periods of divided attention and would slow down the activation even during focused attention.
Also, the erased memories would be easy to recreate with a reminder. Erasing a traumatic memory (the hoped for long term goal of this research team) would be possible, but perhaps would only be temporary.
A full extinction of the memory would only be possible if related memories were also erased or significantly weakened or skewed. And even unrelated memories could be affected if they happen to share some connections with the target memory. This was not tested (and would be really hard to test) in the mice used in this study.
Of course, the point of research is not to solve the problem conclusively but to get us one step closer. More research on this protein and others will help us better understand memory and maybe lead one day to practical interventions and therapies. But if the model I use is correct (or close to it), this path will be a lot harder than the Georgia researchers are hoping for.
In the cognitive model that I use, this can be explained by postulating that the connections composing the target memory schema's composite cell assembly connections are weakened enough so that they don't reach threshold during normal activity. But the related memories are intact because those connections have a different combination of cell assemblies. So while some are weakened, there is enough strength left that the total schema can still reach threshold during normal activity.
But here is the key question. What long term effects would there be during normal and extreme situations for humans? Weakening of the target memory connections, even if they don't erase related memories, would weaken them. This would make them less likely to activate during periods of divided attention and would slow down the activation even during focused attention.
Also, the erased memories would be easy to recreate with a reminder. Erasing a traumatic memory (the hoped for long term goal of this research team) would be possible, but perhaps would only be temporary.
A full extinction of the memory would only be possible if related memories were also erased or significantly weakened or skewed. And even unrelated memories could be affected if they happen to share some connections with the target memory. This was not tested (and would be really hard to test) in the mice used in this study.
Of course, the point of research is not to solve the problem conclusively but to get us one step closer. More research on this protein and others will help us better understand memory and maybe lead one day to practical interventions and therapies. But if the model I use is correct (or close to it), this path will be a lot harder than the Georgia researchers are hoping for.
Monday, September 15, 2008
Human Factors in the public eye???
Greg Mankiw, an economics professor at Harvard, thanked Lehman, Merrill, AIG, etc. for increasing interest in his economics class. For anyone who doesn't read the news, Lehman declared bankruptcy, Merrill is selling out to BoA, and AIG is exploring their "options". This is the biggest banking shakeup since the great depression. The silver lining is that lots of Harvard students are signing up for Professor Mankiw's class.
So, are there any items in the news that have done this for human factors? The Palm Beach Ballot in 2000 did this to some extent. The Mars Explorer crashing into Mars was a small example. Any other suggestions?
So, are there any items in the news that have done this for human factors? The Palm Beach Ballot in 2000 did this to some extent. The Mars Explorer crashing into Mars was a small example. Any other suggestions?
Wednesday, May 28, 2008
magazines
The latest issue of the Tufts University alumni magazine has a letter from the editor about how great magazines are. He lists the benefits of hard copy magazines:
But I still love my paper magazines. I can walk down the sidewalk or sit by the pool with it. I can curl up on the couch with it. Maybe we will get flexible displays that can handle these features too, but I think we have a few years to wait. Until then, I am keeping my subscriptions.
- easy to flip through
- higher resolution than displays
- faster page download (once the magazine has arrived of course)
- good visibility of how much content there is total
- great magazine smell
But I still love my paper magazines. I can walk down the sidewalk or sit by the pool with it. I can curl up on the couch with it. Maybe we will get flexible displays that can handle these features too, but I think we have a few years to wait. Until then, I am keeping my subscriptions.
Monday, May 12, 2008
Usability is now the law !!
Well, its not the law yet, but the House of Representatives passed the Plain Language in Government Communications Act of 2008. Now we just need the Senate at GW to join up.
The basic idea is that all government documents will now include "language that the intended audience can readily understand and use because it is clear, concise, well-organized, and follows other best practices of plain language writing". Sounds like usability to me (and to Caroline Jarrett at Usability News - thanks for the pointer).
This is only half the battle too. Its one thing for the government to promise to make its documents user friendly. The next step is to require other people to make their contracts easy to understand and use (see my book chapter on how to do this). The lack of readable contracts is part of what got us into the credit card mess, subprime mortgage mess, health care insurance mess, and many others. We wouldn't need half as many lawyers if contracts were understandable. But of course, lawyers write the contracts, so . . . .
And for anyone who thinks that regulating contract language is anti-free market, think again. This is a strong libertarian idea. If companies had to make their contracts understandable to their intended customers, those customers could be freed to sign up for any kind of contract they want (except for the universal taboos like slavery etc). They would know what they are getting themselves into and be "allowed" to make that choice.
The reason we need regulation that actually limits behavior is because customers don't/can't understand the fine print. So we have to prevent companies from putting nasty stuff in that fine print. But if the customer understands all of the details and still wants to enter into the agreement, why not let them? This only works when we have understandability.
This new Act is a good first step. Go Congress Go !!!
The basic idea is that all government documents will now include "language that the intended audience can readily understand and use because it is clear, concise, well-organized, and follows other best practices of plain language writing". Sounds like usability to me (and to Caroline Jarrett at Usability News - thanks for the pointer).
This is only half the battle too. Its one thing for the government to promise to make its documents user friendly. The next step is to require other people to make their contracts easy to understand and use (see my book chapter on how to do this). The lack of readable contracts is part of what got us into the credit card mess, subprime mortgage mess, health care insurance mess, and many others. We wouldn't need half as many lawyers if contracts were understandable. But of course, lawyers write the contracts, so . . . .
And for anyone who thinks that regulating contract language is anti-free market, think again. This is a strong libertarian idea. If companies had to make their contracts understandable to their intended customers, those customers could be freed to sign up for any kind of contract they want (except for the universal taboos like slavery etc). They would know what they are getting themselves into and be "allowed" to make that choice.
The reason we need regulation that actually limits behavior is because customers don't/can't understand the fine print. So we have to prevent companies from putting nasty stuff in that fine print. But if the customer understands all of the details and still wants to enter into the agreement, why not let them? This only works when we have understandability.
This new Act is a good first step. Go Congress Go !!!
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We have learned a lot about human cognition since the 1960s that would have served MLK better in his approach. When people make decisions, big or small, their first impression becomes anchored and is tough to overturn even in the face of strong evidence. And if that impression is stated publicly the effect is even stronger. If the decision maker acts on the decision, it is stronger still.
So MLK should have thought of a way to get the incoming Birmingham administration to do something publicly, no matter how small, in support of his movement. It didn't even have to be directly relevant to equal rights. That could have come later. Instead, he forced their first act to be directly opposed and guaranteed that they would continue to oppose him.
Perhaps he was more interested in gaining national attention and preferred a public conflict. That is often what civil disobedience is designed for. But not for influencing the local pols, he did the exact opposite of what might have worked. Of course, MLK did not have the benefit of the past 40 years of cognition research.