15 January 2014

The Irrationalities of WHY – How We Fail to Incorporate (True) Causality in Our Decisions and Judgments

Children between the ages of tree and five have an (annoying) habit of asking repeatedly Why. Although these repeated questions of why may get to the nerves of many adults, they are very useful for intellectual development. We humans have a very basic need of understanding why things around us are the way they are and why they happen the way they do.

Despite this intrinsic curiosity and need for understanding the whys of the world, we are very often incapable of understanding (true) causality. It seems to be a paradox, but there’s a reasonable explanation, which is that as long as we find a plausible answer to the question why, we do not look any further.

Let me illustrate this with an example from Mother Nature. Earthquakes are reality of our planet. Most importantly, earthquakes come with damage if they are quite large. Engineering has tackled some of the downsides of earthquakes such as buildings collapsing, but by far there still are buildings that fall and people are killed and injured in earthquakes. In face of a big earthquake there is nothing anyone can do. It is only naturally that people fear earthquakes and it is only natural that only the possibility of a big earthquake generates a bit of hysteria.

Apart from the disasters they generate, earthquakes have another particular characteristic, namely that they can’t be accurately predicted with more than a few tens of seconds before they happen. Even the current technology can’t do very well when it comes to predicting earthquakes. Just as a note, even those 30 seconds are a great achievement and come with huge benefits such as the possibility of switching off nuclear power-plants, natural gas distribution in cities etc.

Although we cannot accurately predict earthquakes, we know what generates them: the collision between tectonic plates. Putting things very simplistically, in essence an earthquake is the release of accumulated tension between two tectonic plates.

Knowing this and keeping things simple, the tension accumulated between two tectonic plates can be released gradually – which results in many small earthquakes, or it can be released at once which results in big earthquakes.

Keeping in mind this simplistic rule, we can say that when a small (and non-dangerous) earthquake happens, it is in fact good news. This is because some of the tension accumulated between two tectonic plates was released, thus the remaining tension is smaller which in turn means that the probability of a big (and dangerous) earthquake occurring in the near future decreased.

Human psychology is, however, quite different. We humans become scared and even panicked when we experience a small earthquake. This is because the notion of earthquake is suddenly very salient in our minds and all the disastrous consequences of a big earthquake are vivid in our imagination.

To sum up, when a small earthquake occurs, the objective probability of a big earthquake to hit in the near future decreases because part of the tension between the tectonic plates was released. However, in our minds, the occurrence of a small earthquake makes the possibility of a big one to hit in the near future more vivid, thus increasing the subjective probability of it occurring.

Another similar illustration on our fallacy to understand true causality comes from Australia where at the end of 2013 there was a huge bush-fire. Naturally there are many causes for a bush-fire such as negligence in using open flame, but one major cause of big bush-fires is that there is a lot of material that can burn. TV reports said that in the past ten years there were no considerable bush-fires in the areas hit. So, the physical, pragmatic cause of the huge bush-fire – flammable material – was there and has accumulated in quite a large time-span.

On the Psychology side, it is only natural for people to be terrified by huge fires (it is in our hard-wiring). However, I am convinced that in the ten years preceding 2013’s huge bush-fire, very few people were concerned or terrified by the lack of small-scale bush-fires. In fact, it is very plausible for people to have thought during those ten years that the danger (risk) of bush-fires to have decreased since no significant bush-fire happened in the recent past (this was before the huge one in the end of 2013).

This way of thinking has a huge influence on the behaviour of purchasing risk managing products and services such as insurance. The sales of insurance policies that cover the risk of earthquake (or bush-fires) increases after the occurrence of an earthquake (big or small, but big ones have a stronger influence). Similarly, sales of such insurance policies decrease when there hasn’t been an earthquake (or fire) for quite some time. Most interestingly, this dynamic of behaviour is completely the opposite of the dynamic of objective risks. After an earthquake (may it be small or big) the objective risk of a big earthquake occurring in the near future is lower, whereas during a period without earthquakes (or fires) the risk of a big one with subsequent big damages is, in fact, higher.

Small bad things such as small earthquakes and small bush-fires are, objectively, good news because they contribute to decreasing the risk of big bad things (big earthquakes and huge bush-fires that go out of control). However, the huge majority of people doesn’t think this way and panics when small bad events occur. Moreover, the lack of small bad things goes mostly unnoticed and when thinking of the risk of big bad things many people perceive it as being low since not even small bad things happened in the recent past.

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