Right Question, Wrong Answer

When it comes to making decisions, we have the right algorithm, but we use the wrong inputs because we misperceive our world. That’s the central, Eyes Wide Open idea of this week’s TedTalkTuesday.

Harvard psychologist Dan Gilbert begins his excellent TED Talk with a reference to Dutch mathematician Daniel Bernoulli. I’m currently in Den Haag—one of the greatest of Dutch cities—on my European speaking tour, so Gilbert’s Talk is a timely choice!

As Gilbert recounts, in 1738, Bernoulli gave us a powerful formula with which to assess our decisions. The “expected value” of a binary action, Bernoulli explained, is the product of two simple things: (1) the odds it will bring about the desired outcome and (2) the value of that outcome. (For example, if a particular course of action carries a 75% chance of making you $100, its expected value is 75% * $100, or $75.) Put another way, we can rigorously evaluate a decision if we know (1) the likelihood it will produce the result we seek and (2) the value that achieving that result holds for us. The idea is simple and elegant.

But is it helpful? Maybe not. Gilbert argues that we’re bad at making decisions because we do a poor job estimating both values. That is, we’re bad at estimating the probability of the desired outcome, and we’re bad at estimating the value such an outcome holds for us. In light of these shortcomings, Bernoulli’s intuitive and enticing lesson may do us more harm than good. This is a significant problem in today’s complex world, Gilbert posits, one we should endeavor to solve quickly.

Gilbert’s Talk is entertaining and impactful. Fast-paced, it offers numerous compelling examples of research studies that underscore our failings when it comes to estimating probabilities and value. These examples will hit you hard and stay with you.

Gilbert’s takeaways will, too. Why are we so bad at this important way of thinking, and what are the implications? On the former front, Gilbert argues that our minds evolved to assess a very different world than the one we inhabit today. We’re wired to assess the behaviors of short lives, experienced in small groups, with little variation in our circumstances. Bernoulli’s is a tool for a world nature did not intend for us.

It’s a tool for today’s world, and Gilbert sees great consequences for us if we don’t learn how to use it properly—eyes wide open, if you will. As he notes, as a species we face no threats but our own decisions. Yet we face grave threats. We need to learn how to respond to those threats more effectively. For example, do we make the right decisions when it comes to the global scourge of terrorism? No, Gilbert suggests, because we misperceive both the probabilities and the costs.

What do you think? What’s your favorite TED Talk? Join the discussion and let me know. I want to hear from you!

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