Volume 3 – Reading Notebook #V: From “Trust Them” to “See for Yourself” – The Fast & Slow Retractions of Behavioral Economics and "The Intelligence of Intuition"
For new readers, please read the “Pinned Post” at the top of this Substack’s Home Page, and titled Why Use Public Peer-Review to Write a Book? - “See for Yourself”.
For returning readers & subscribers, this post presents the first draft of a section that fits in Volume 3 – Reading Notebook #V: From “Trust Them” to “See for Yourself” – The Fast & Slow Retractions of Behavioral Economics. Reading Notebook V examines a series of papers and books about allegations and evidence of “Willful Ignorance, Error & Deceit” in Behavioral Economics, with the help of the analytical structure provided by the “Template for Reading Research Papers” shared in earlier posts. As introduced in yesterday’s post, this post presents a reading of Gerd Gigerenzer’s latest book, titled “The Intelligence of Intuition”.
Using a sailing analogy to illustrate why we should look for the survival value of the “Real Stories” instead of the short-term comfort of the “Good Stories”, in order to make good individual, business & investment decisions, we float our individual boats on an ocean of narratives, and making good decisions requires that we know water from rocks, or else we sink. Narratives based on “Willful Ignorance, Error & Deceit” abound, akin to rocks in the water, and Gigerenzer materially improves our ability to see which is which.
“The Intelligence of Intuition” benefits from Gigerenzer’s long experience, thus contrary to the maxim “If I had more time, I would have written a shorter letter”, he took the time of a lifetime to write a concise, precise, and accurate book. However, this book does not mark a biographical end-point of individual greatness, but instead it marks a beginning for the rest of us. Not only do Gigerenzer’s “Processes, Heuristics & Algorithms” apply to human “Decision-Making, Intelligent Inference & Informed Consent”, but their explicit design and unique development history makes them apply to Artificial Intelligence as well. This book names names, sorts the “Wheat from the Chaff”, and moves our thinking “Out of the Box”, and into the future.
The core idea:
- “Theory-free” recommendations, “As-if” models, and matching prescriptive simulations will sink your boat in real-life.
- Instead use “Processes”, such as the algorithms of the “Fast & Frugal” Heuristics Program to find “Fair Winds and Following Seas”.
Long-time readers of this Substack will likely notice that the structure of Gigerenzer’s book provides a pretty good match to the structure of the “Template for Reading Research Papers”, as it moves from “Perspective”, to the “Context” of “Domain Knowledge & Historical Lineage”, to “Purpose”, “Methodology”, “Methods”, “Axioms, Assumptions & Hypotheses”, and finally “Meaning”. This makes the book easy read, and its points easy to remember.
Starting with Chapter 1, we can see that Gigerenzer empowers the individual, “We know more than we can tell”, and shows us why & when we should use our intuition [e.g. the algorithms of the “Fast & Frugal” Heuristic Program], as well as why & when we should use the “Tools” of the Logic & Statistics Program. This is not a matter of either/or, but a matter of why & when in order to avoid “Willful Blindness, Error & Deceit” based on our current circumstances.
Continuing with a review of the historic lineage of the academic, social, religious, & political battles between intuition and reason, Gigerenzer shows us the imperfect evolution of Psychology, its prejudices, and the pervasive absence of theory behind many developments, such as IQ testing. This sets the stage for the current battles where the Heuristics & Bias Program seeks to turn intuition into irrationality. The academic fields that belong to the Heuristics & Bias Program include Behavioral Economics, and Behavioral Finance.
Then, Gigerenzer shows how research designs that conflate logical equivalence with informational equivalence see failures of rationality from human biases as contrasted with improved research designs that see the conflation and make the distinction, thus see intelligent inference from intuition. There is a bias in seeing bias in everything, and Gigerenzer calls it the “Bias Bias”. This goes a long way to explain the lack of reproducibility of famous results that, to the surprise of many, include the expected effects of Framing, the intuitive Mis-perceptions of Randomness, and the existence of the “Hot Hand” Fallacy. Yet, these non-reproducible findings of the Heuristics & Bias Program dominate the thinking of public and private institutions, perhaps in part - and not just a small part - because they line up easily into some of the historical battle lines of Psychology, including the battle between Paternalism vs. Informed Consent.
Gigerenzer then expands the debate with Herbert Simon’s “Scissors” [The consideration of both the decision-maker (“Rational”, irrational, biased, intuitive, etc.), and the nature of their “Task Environment” (The circumstances surrounding decision-making)], to present his concept of “Ecological Rationality”. Pages 52 to 55, showing an example of the proper use of statistics in research design, and the validity of intuitions about randomness under conditions of uncertainty [instead of risk], demonstrate the validity of Gigerenzer’s “Ecological Rationality” in a way that alone would justify the price of the book. “Rational” decision-makers make good decisions when they use the “Tools” of the Logic & Statistics Program to match the circumstances of risky “Task Environments”, and Intuitive decision-makers make good decisions when they use the “Processes, Heuristics & Algorithms” of the “Fast & Frugal” Heuristics Program to match the circumstances of uncertain “Task Environments”. In real-life, “Small Worlds” risky “Task Environments” become the exception, and “Large World” uncertain “Task Environments” become the rule.
At this point, the reader can see that the “Small Worlds” ground-truth of the Logic & Statistics Program adopted by the Heuristics & Bias Program comes together in form of restricted exceptions based on simplifications that do not hold up in the “Large World”. Thus, who bears the burden of proof when using “Best Practices” derived from the Heuristics & Bias Program in the real-world? Thus, Gigerenzer turns the tables, and places the burden of proof on the prescriptive, “Rational” designs, such as Nudging, to show the difference between their expected and their actual costs & benefits, revealing quantitatively that their “Real Story” does not match their “Good Story”.
Moving from analytical criticisms of the Heuristics & Bias Program to empirical demonstrations of the “Fast & Frugal” Heuristics Program, the book shifts to presenting, comparing, and contrasting specific heuristic “Processes”, and algorithms that include: The “Fluency” heuristic, the “One-good-reason” heuristics, the “Fast & Frugal Tree” heuristic, the “Recognition” heuristic, the “Satisficing” heuristic, and “Embodied” heuristics such as the “Gaze” heuristic. Readers will be able to use some of these heuristics immediately, especially the heuristics that relate to hiring new employees and team members. To prove a key point from the book for yourself, you may observe that using such heuristics may start as a conscious effort, and soon becomes an unconscious intuition.
Finally, Gigerenzer closes the book on a discussion of “Moral Intuition”, its sources in social heuristics, and the importance of “Ecological Rationality” in morality. This discussion leads to a final, “How To” chapter that focuses on how readers can use heuristics to run a research group, based on his decades-long experience of developing the field of heuristics, and applying its lessons to running his own research group.
As you close Gigerenzer’s book, and reflect upon what you read, one may wonder at what point will the growing allegations and evidence of “Willful Ignorance, Error & Deceit” in the Heuristics & Bias Program turn its “Best Practices” into “Bad Liabilities”, and what other sources exist to create better “Best Practices” for making good individual, business, and investment decisions?
Gigerenzer shows that “Processes, Heuristics & Algorithms”, instead of “Theory-free Biases, As-if Models & Prescriptive Simulations”, provide such a source for better “Best Practices” that will benefit individual “Decision-Making, Intelligent Inference & Informed Consent.
Closing this book, we can see the past, understand the present, and predict the future. What does your “Moral Intuition” tell you, and what will you do about it?
“CTRI by Francois Gadenne” writes a book in three volumes, published at the rate of one two-pages section per day on Substack for public peer-review. The book connects the dots of life-enhancing practices for the next generation, free of controlling algorithms, based on the lifetime experience of a retirement age entrepreneur, & continuously updated with insights from reading Wealth, Health, & Statistics (i.e. AI/ML/LLM) research papers on behalf of large companies as the co-founder of CTRI.