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Eureka: The Unified Model of Human Biases
by Jay Gutman
2017-11-17 10:19:40
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Human biases are the new game theory. They are among the most studied sub-discipline in economics. For example, the availabilty bias where we deduct conclusions based on available information, for example if there's a plane crash we deduct that cars are safer than planes. Up until this point, no one seems to have provided a unified model for human biases, so, perhaps for the first time, here's my unified model of human biases.

bias01_400It's simple. To me, each human bias has three sides to its coin: the emotional side, the factual side and the narrative side. Let's take the gambler's fallacy for example. In the gambler's fallacy, you have the emotional aspect where the gambler wants to repress his frustration with the hope of winning the jackpot. Emotions, mainly hope, drive him to gamble. Then there's the factual side of the gambler's fallacy, where the gambler believes that a one in a million chance of winning means if he plays a million times he will have to win once. Finally, there's the narrative side of the coin, where the gambler hangs out with his friends who tell him that if he plays a million times he'll win once, and that the one dollar wagers are worth the multi-million dollar jackpot. That narrative sticks in the gambler's head.

To me, every single fallacy has the emotional side, the factual/procedural side and the narrative side. Biases are defined as being distortions of the truth which are believed by individuals. I would add that those distortions have an emotional component, a factual and procedural component and a narrative component.

Let's take three biases to illustrate my point. We'll look at confirmation bias, herd behavior and momentum investing. Let's take all three examples from the perspective of the English education market in South Korea. The confirmation bias in that example is that you will get a good job if you speak good English. The truth is some do and some don't get a good job when they speak good English. The herd behavior is one where just because all my friends are teaching their children English, my children should learn English. Perhaps French or Arabic would give them better job prospects. Finally, momentum investment is where just because in the last couple of years the English education market was a multi-million dollar market that kept going up, it will go higher. What if people start realizing that English won't get them their dream job and give up on English all together.

Let's take the first bias. Confirmation bias. Confirmation bias is a bias where your beliefs or general beliefs contradict the truth. For example that by speaking English, you will be a world leader or you will have a cushy job. I don't. I speak English. I also speak French. And other languages. Don't want to brag, but my last paycheck was 300 Dollars. Not for a day. Not for a week. For 31 days working 30 to 40 hours a week. And excuse my French, I was treated like a nigger at that job. Pardon my French. Couldn't find another word. It's the truth.

Now back to the topic. Confirmation bias. Again there's the emotional side of the coin. Hope. Anger. Frustration. Guilt. Love. For example, to give a lame example, if you say “all Jews are rich” you have an emotional side of the confirmation bias where perhaps envy along with jealousy are the culprits. Unfortunately some Jews live from hand to mouth, others are Mark Zuckerberg. Bill Gates and Steve Jobs are not Jewish, among many others. That's the emotional side of the confirmation bias. The factual side is to get a list of “wealthy Jews” off the internet and to conclude that all Jews are wealthy. The narrative side of the bias is to hear stories of how Jews stroke it rich and to conclude that all Jews are wealthy.

Let's look at herd behavior. Just because a lot of people in South Korea are studying English, I should study English too. There an emotional side of the bias. Perhaps guilt. I feel like I'm missing out on something if I'm not studying English. Then there is the factual/procedural side of the coin. 18 billion dollars a year are spent on English education, so I have to study English. Finally there's the narrative side of the coin. I went to a family dinner last week and all the family was talking about were the English classes they were taking.

Finally there's momentum investment. Just because this year South Koreans paid 18 billion dollars to study English, perhaps I should invest in English schools. The emotional side of the bias is envy of people who seem to have made millions opening English schools. The factual side of the bias are all the statistics related to English education in South Korea. The narrative side of the bias are the stories of people opening English schools and getting hundreds of students.

Take any bias and you'll find an emotional side, a factual/procedural side and a narrative side. Does this fit your idea of Unified Model of Human Biases?

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