Call me an idiot but I am not stupid

Cocktail of the day. A little bit of behavioural economics mixed with genetic evolutionism.

First a well known experiment; €10 and 2 persons, one of the persons makes an offer on how to split the money, the second accepts or rejects the offer. If the offer is accepted both subjects split the money as offered, if the offer is rejected no one gets any money. The interesting thing of this experiment is not that in most of the cases the offer is fair and close to half of the money, the interesting part is that for very unfair offers, for example a 8 / 2 split, the second subject rejects the offer. In this case both subjects loose. Why does not the second subject think that after all €2 is better than nothing? Well it seems that the natural response by human beings is to reject unfairness, even if it does not benefit them in the short term.

So is it just that humans have developed a sense for fairness and punish the unfair, or is it that we know that several behaviours are not good for the group (the apparent altruism described by Richard Dawkins in his book "The Selfish Gene") and as part of the group we punish anyone trying to break the equilibrium in the group? I believe so, by punishing behaviours that are against the group we make sure that in the future selfish behaviours will be less likely to happen.

Under certain circumstances by losing we all win, and thus we are ready to take the pain. But this altruism may have its limits. Take for example the countries were corruption is generalized, it happens at all levels from the top officials to the layman. In those societies the equilibrium is already broken and it makes no difference to punish any individual for her greed as it won't make any difference for the group as a whole. Thus once corruption is installed in a society it is so difficult to eradicate because the cohesion principles of the group are already broken.

Ich liebe es nicht

Advertising billboards in Germany are not very catchy, most of the time a fat guy advertising tools for a DIY shop. The colours are usually as neutral as the message, so it does not hurt passing by. But recently a famous fast "food" company has taken over the billboards for their breakfast campaign, freshly brewed coffee and a burger is their idea of what we should have to start the day.

For me if coffee was a religion, cafes ought to be their temples. A place with the right atmosphere, were you get your cup of coffee, properly done on a espresso machine, maybe pick the morning newspaper if you are alone, or have a quite chat with your colleagues. I firmly reject the idea of lining on the queue in from of the till to ask for a coffee to a teenager dressed in the corporate uniform that will whisper to the microphone "espresso macchiato" to someone behind the wall, and then will ask you - Sugar and milk? -, and after 10 seconds give you the paper cup that magically appears from behind the wall. And after that you pick your "coffee to go" and you rush to your work...

No!, that is not how it should be. Ich liebe es night!

Let the masses think freely

I have been reading recently about the capability of groups to find solutions to certain types of problems. It came as a surprise to me that under certain conditions groups are better at solving problems than most of the individuals of the group, regardless of the individuals level of experience.

Examples of tasks at which groups are good solving them; when a class was challenged to estimate the number of balls in a jar (that actually contained 850 balls), the average of the answers was better than 94% of the individual answers.

Another good example of problem solving at which crowds perform well is betting, a bookie's job is to try to get as much betted money for a favourite than for an under dog because the margin he wins depends on this. If a lot of people bet for a favourite the booker will incentive bets for the under dog by modifying the odds, betters will see the improvement in the cost of opportunity of the under dog and will start betting for them. Let this system (bets - odds correction) run for a while and the average of the bets will give you a very accurate prediction of what is going to happen. In horse racing most of the time the bets reflect the order of arrival of the horses.

There are some conditions for the crowds to make good predictions; as the second example shows an incentive for the individuals is always good, but also it is important the independence of the individuals, and seems that more heterogeneous groups will lead to better solutions. But it is also important that there is a mechanism that takes the opinions into account and processes them (the bookie or the person doing the mean of the estimations of balls in the jar, the stock market is another aggregating mechanism, in this case it estimates the future value of companies).

It seems as if the human being has the gift to be able to take good collective decisions, but it also seems that the best collective decisions are taken if not in isolation (there is a need of a mechanism to put all the information together) at least with independence. All of this comes as a surprise to me, I have always doubted of the sensibility of the 'herd', and there are numerous examples of crowds going wrong. But I had never considered under which conditions the herd is able to make sound decisions. Maybe that is the fundamental lesson for us to learn, to be able to identify when are the conditions ideal for the group to make a decision or when the conditions have been naturally or forcefully altered so the group may not decide independently. After all isn't this what marketing is all about?