Your favorite actor is starring in the sequel to a movie you totally loved. You’ve been waiting months for its release, and when the day arrives you’ve got a babysitter, popcorn, and an excellent seat.
The movie begins. You settle in happily, but 15 minutes later you can’t help noticing things that annoy you: The dialogue is flat, the theater is loud, and even this early on, the plot seems overblown. Your watch says it’s 8:00, and the movie doesn’t end until 10:00. If you’re thinking like your average theater-goer, you probably feel compelled to stay. But if you’re thinking like an economist, you quietly stand up and leave.
Why? Because an economist would say it’s a mistake to yoke your decision to stay or go to costs you’ve already absorbed. Your life begins now, they’d say, and depleted resources shouldn’t affect what you do next. Neither your time nor your money can be returned, which makes them, in the language of economists, “sunk costs.” By forcing yourself to endure a disappointing evening, you’re making yourself pay twice: first for the ticket, and second by obliging yourself to sit through a movie you’re not enjoying rather than doing something you’d like more.
Out of the Ordinary
Richard Nisbett, the Theodore M. Newcomb Distinguished University Professor, has culled such principles from economics and other unexpected disciplines—statistics, logic, psychology, and philosophy—and applied them to ordinary life. A social psychologist, he’s spent much of his career researching reasoning and cognition, including the nuts and bolts of how we make judgments that lead us to the wrong decision. In his recently published book, Mindware: Tools for Smart Thinking, he describes how we can use these principles to make better ones.
“I got interested in the sorts of errors that kept cropping up,” Nisbett explains. “My research focuses on the way people reason. Working with people in different disciplines at U-M, I found these different fields shared fundamental paradigms. Different disciplines applied these paradigms to different kinds of problems, but the paradigms themselves appeared over and over again.”
Nisbett noticed things such as the “endowment effect,” in which we overestimate the value of the things we possess, and “choice architecture,” which refers to the way the environment that frames our options also influences what we choose. Nisbett found that a remarkably large number of our errors could be avoided if we applied certain scientific concepts and principles. “And,” he says, “it is surprisingly easy to teach these principles in just a few minutes.”
For example, take the law of large numbers, which says that by conducting more trials, you're more likely to produce an accurate outcome. If we think like a statistician and keep the law of large numbers in mind, we might not pass on a highly qualified, highly recommended job candidate because of an underwhelming 30-minute interview. Your new colleague, Jane, may have rejected your kind invitation to have lunch because she needed to pick up a prescription and not because she is rude. Basing your opinion on that one interaction, says Nisbett, might mean you miss an opportunity to make a friend.
Early in his career, Nisbett says he was interested in two things: errors and the fact that so little of our reasoning process is accessible to us. These interests exposed him to ways of thinking and work that would eventually become behavioral economics. He began to apply behavioral economics' principles, such as what causes some investors to make irrational systematic errors while others make rational market assumptions, to his own research about cognition, which set him on a course connecting different fields of study.
“This book could only have been written by me because I was at U-M,” he says. “You can’t imagine the extent to which this university is unique in terms of people working across disciplines.
“I know how it works at other universities. People don’t know what research is going on down the hall, and they certainly know nothing about the research happening in other departments. I had a very lucky set of intellectual traditions in which I was situated, and U-M exposed me to ways of thinking within a whole range of disciplines.”
The rules and paradigms from these disciplines are certainly not unfamiliar on college campuses, but they’re not typically taught outside of their discipline or in ways that apply to ordinary life. Nisbett thinks they should be.
He was delighted when he learned U-M’s medical school teaches its students probabilistic reasoning—a problem-solving technique that uses probability to evaluate evidence to infer conclusions—as well as statistics. “Of course you’re a better doctor if you know statistics!” he says.
Nisbett believes that once people understand these concepts, they automatically assimilate them into their thoughts and decisions. “Of course it’s going to leak into everyday life. Statisticians view everything statistically; to them that way of thinking is no longer statistics, it’s common sense. All of these rules are like that. Once you know them, they go straight into your spinal cord.
“I’ve spent my career trying to work out how people reason,” he says. “Now I want to take what I’ve learned and teach people to be smarter. What I’ve written in this book won’t do a darn thing to raise your IQ, but it will make you smarter and, hopefully, improve your life in the process.”