Explaining base rate neglect

In a seminar for a team from an investment manager I described how base rates are often neglected when people are grappling with conditional probabilities. My description was somewhat confusing, so the below is a short write-up for the participants. – Consider the following question scenario. You test yourself with a rapid antigen test for COVID-19. The following information is known: The probability that a person has COVID-19 is 1% (the prevalence).

A bunch of links

A past regular feature of this blog was “A week of links’. Primarily, it was a useful way to aggregate interesting articles - I often search my blog posts for material (they are a collection of text files on my computer). But, the regularity of the feature drove my behaviour: I started looking for links for the post. So, I killed it. Now for the partial resurrection, with links posts to be delivered at random intervals to share articles or ideas that are worth a read.

Bankers are more honest than the rest of us

In an oft-quoted and cited Nature paper, Business culture and dishonesty in the banking industry, Cohn and colleagues argue that the culture in banking weakens and undermines the honesty norm. In the abstract they state: [W]e show that employees of a large, international bank behave, on average, honestly in a control condition. However, when their professional identity as bank employees is rendered salient, a significant proportion of them become dishonest.

My podcast appearances

Over the last few years I have appeared on several podcasts, the most recent being a discussion with Phil Agnew on the Nudge podcast. I am definitely more a writer than a speaker, but if you prefer audio to the written, check out the below. Nudge podcast - Beware of Behaviour Science BS 42courses - Behavioural Science & Evolutionary Biology Todd Nief - Loss Aversion and Ergodicity Economics: This was a long and pretty technical conversation on the back of a primer I wrote on ergodicity economics.

The outsider to the narrow-minded profession

I have always been a sucker for stories about an outsider tearing down what everyone believes to be true. With that, it’s no surprise that I have fond memories from my first read of M. Mitchell Waldrop’s book Complexity: The Emerging Science at the Edge of Order and Chaos (which must been around 20-years ago). The book is framed around the coalescence of a group of researchers into the Santa Fe Institute.

Replicating scarcity

In Scarcity: Why having too little means so much, Sendhil Mullainathan and Eldar Shafir tell the following (now famous) story: To see the effect of scarcity on fluid intelligence, we ran some studies with our graduate student, Jiaying Zhao, in which we gave people in a New Jersey mall the Raven’s Progressive Matrices test. First, half the subjects were presented with simple hypothetical scenarios, such as this one: Imagine that your car has some trouble, which requires a $300 service.

How big is the effect of a nudge?

Last month a new meta-analysis of ’nudges’ by Stephanie Mertens and friends was published, with a headline finding that: choice architecture interventions overall promote behavior change with a small to medium effect size of Cohen’s d = 0.45 (95% CI [0.39, 0.52]). The criticism came fast. Andrew Gelman jumped in to “broadcast the problems with this article right away”. He wrote: Wha . . .? An effect size of 0.

The academic experiment

This week I finally took the plunge and joined academia. It’s a possibility that has been lurking over me for close to ten years, although recently I had been of the view that the time had passed. As I wound up my PhD in 2014, I nosed around the Australian academic job market. With twins on the way, I was somewhat reluctant to nose further afield, so only applied for two foreign opportunities that were a particularly good fit.

A critical behavioural economics and behavioural science reading list

This reading list is a balance to the one-dimensional view in many popular books, TED talks, or conferences. For those who feel they have a good understanding of the literature after reading Thinking Fast and Slow, Predictably Irrational and Nudge, this is for you. [In the time since I first wrote this, it’s fair to say that the balance has swung on Twitter.] The purpose of this reading list is not to argue that all behavioural economics or behavioural science is bunk (it’s not).

The 1/N portfolio versus the optimal strategy: Does a simple heuristic outperform?

Gerd Gigerenzer is fond of telling a story about Harry Markowitz, modern portfolio design pioneer and winner of the 1990 Nobel Memorial Prize in Economic Sciences. Here’s one version of the story, from Risk Savvy: Assume you have a chunk of money and want to invest it. You do not want to put all your eggs into one basket and are considering a number of stocks. You want to diversify.