Human Nature #19: Hedonic Adaptation

Imagine you’re on vacation in some exotic tropical location. You relax on the beach and take in the amazing view. The next day, you do the same but find it isn’t as amazing as the first day – so you add some aged scotch to the equation and like magic the feeling is back. Same thing the next day, but this time you add a cigar, or a massage, or something else to boost the experience. Each day, the same thing. That great feeling you are searching for requires more and more just to stay the same.

Everything is amazing and nobody is happy. The brilliant Louis CK bit on the subject goes something like this: “I was sitting on an airplane that had high-speed internet – the newest thing. It breaks down shortly into the flight. The guy next to me goes ‘this is bullshit’. How quickly the world owes him something he knew existed only 10 seconds ago.”

Psychologists refer to this phenomenon as hedonic adaptation. It is the observed tendency of humans to quickly return to a relatively stable level of happiness despite major positive or negative changes in one’s life. In Daniel Kahneman’s words:

People are exposed to many messages that encourage them to believe that a change of weight, scent, hair color (or coverage), car, clothes, or many other aspects will produce a marked improvement in their happiness. Our research suggests a moral, and a warning: Nothing that you focus on will make as much difference as you think.

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Human Nature #18: Reactive Devaluation

Back in 2013, the Washington Post ran a poll asking if people were in favor or opposed to certain policy positions. For example, one question was “Do you favor or oppose creating a way for illegal immigrants already here to become citizens if they meet certain requirements?” About 60% of republicans polled responded in favor.

A different group was asked a similar but slightly different question: “Obama has proposed creating a way for illegal immigrants already here to become citizens if they meet certain requirements. Do you favor or oppose this?” This time, only 39% of republicans polled responded in favor.

Reactive devaluation is a cognitive bias that occurs when a proposal is devalued simply because it comes from another party, especially if it comes from an adversary. In the above example, the value of the proposal depended more on the source of the idea, rather than the idea itself.

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Human Nature #17: Mental Accounting

Imagine you are saving up for a vacation and set aside a separate account for that goal. You might put money into that account every month and view it as untouchable until your trip. You might¬†set aside a similar account for your retirement, a down-payment on a house, fun money, Christmas gifts, etc. Each bucket of money would have its own use and wouldn’t be interchangeable for another.

Imagine you just received your paycheck, your tax return, won a small lottery, and found $100 dollars on the floor in the same week. You might apply your paycheck towards your normal bills and savings, but the other windfalls might be treated differently. The value of the money is all the same, but how you use it might not be.

Richard Thaler first described this human tendency in his paper Toward a Positive Theory of Consumer Choice (1980). He described mental accounting as a process in which people code, categorize, and evaluate economic outcomes by grouping their assets into any number of non-interchangeable mental accounts. This can cause problems.

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Human Nature #16: Hyperbolic Discounting

Imagine that we are given the choice between receiving $100 today or $200 tomorrow. The answer seems obvious, we should wait a day and get that extra $100. But now imagine that the choice is between receiving $100 today or $200 in a year. The answer seems less obvious. As the waiting time increases, the importance of that extra $100 decreases.

Statistically, when people are given the second option, they overwhelmingly choose $100 today. When those same people are asked again to choose between $100 in five years or $200 in six years, their preferences flip again, preferring to wait the extra year for the extra $100. They assume that they will be fine waiting in the future even though they aren’t fine waiting today. In reality, when year five rolls around, they will probably want the immediate payoff as much as they want it today.

These conflicting preferences tell us something about the inherent irrationality in how we deal with the future.

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Human Nature #15: Attribution Error

Imagine you’re driving down a road, minding your own business, then suddenly¬†you’re cut-off by another driver. A natural response might be to assume the other driver is impatient, reckless, and probably a complete asshole.

Now flip the script. You are racing down the road to get to the hospital. Your wounded spouse sits in the back. You notice another car merging into your lane. It appears that they are going to hit you so you act quickly, swerving into another lane by cutting someone off. You don’t think twice about it. You don’t think you are impatient, reckless, or a complete asshole. A minute later someone cuts you off. You think to yourself “what a jerk”.

When dealing with other people, our tendency to place an undue emphasis on internal characteristics while downplaying external factors is known as the fundamental attribution error.

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Human Nature #14: Illusion of Control

Have you ever found yourself pressing an elevator button multiple times or with greater force? Have you ever found yourself blowing on a pair of dice or standing up for your team’s attempt at a winning play? In these examples, our actions have no effect on the outcome but we still feel like we have some influence on the situation.

In the 1970s, Ellen Langer ran a series of experiments showing that if you introduced some non-chance task into a random event, you could create an illusion of control. In one experiment, a subject and an actor took turns drawing from a fair deck of cards. The high card would win and the subjects could bet money on each turn. Subjects who were up against an awkwardly dressed actor would consistently bet more than subjects who were up against a professionally dressed actor.

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Human Nature #13: Authority Bias

In July 1961, three months after the trial of German Nazi war criminal Adolf Eichmann began, Stanley Milgram devised an experiment to answer the following question: How could anyone follow orders that led to such atrocities? Milgram published his findings in a Behavioral study of Obedience (1963).

The experiment involved three people: the one running the experiment, the subject of the experiment, and an actor pretending to be a second subject. The subject and the actor would both draw a slip of paper that assigned their role – either teacher or learner. However, both slips said teacher and the actor always claimed learner.

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Human Nature #12: Sensemaking

In 2003, when Saddam Hussein was captured, Bloomberg News released the following headline: TREASURIES RISE; HUSSEIN CAPTURE MAY NOT CURB TERRORISM. About 30 minutes later, they released another: TREASURIES FALL; HUSSEIN CAPTURE BOOSTS ALLURE OF RISKY ASSETS.

This contradiction was made famous by Nassim Taleb in his book The Black Swan. Obviously, two opposite consequences can’t be explained by the same thing but that doesn’t stop a good story. As such, many similar paradoxical headlines are littered across the financial news landscape. In The Black Swan, Taleb argues:

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Human Nature #11: Social Proof

In the 1950s, Solomon Asch developed an experiment to study how individuals yielded to or defied a majority group. A group of 8 students would be shown a card with a reference line on it. The line was a certain length, let’s say 1 inch. The group was then shown three different lines and asked which line best matched the reference. Two of the lines were clearly longer or shorter and one matched perfectly.

The trick was that 7 of the 8 students were confederates, people who were in on the experiment. In the first round, the confederates were all instructed to give the right answer. The test subjects also gave the right answer. But in the third round, the confederates were instructed to give the same wrong answer. The test subjects also gave the same wrong answer.

What happened here? Why did the test subject give a clearly wrong answer just because other people were doing it? This is the subject of today post.

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Human Nature #10: Reciprocity

Imagine you are eating at a restaurant with a coworker. You both engage in some small talk and then the check comes. As would be expected, you both dive for it. Your coworker was a bit faster. You offer to pay, but the coworker just says you can get it next time.

You just landed a free lunch but something doesn’t feel right. You don’t like being indebted to someone even if it’s insignificant. The next day at work, your coworker asks for some help with a project. You jump at the opportunity to balance the scale.

If you can relate to this, you would be victim to the rule of reciprocity that Robert Cialdini popularized in his book Influence: They Psychology of Persuasion. If the significance of this isn’t apparent, here’s Sheldon Cooper to explain (excuse the laugh track).

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