Behaviouronomics

Once upon a time, there were two merchants. Jaggeryman and Oilman. As the name suggests, they used to sell jaggery and oil, respectively. Doing business in their village was simple. People would come to their shops, buy the stuff, pay cash and leave.

But humans get impatient with simple things. So our merchant duo decided to move their shops to a city, rented shops next to each other and hoped that their products would start flying off the shelf. But when sales didn’t pick up even after a few weeks, during a brainstorming session, Oilman suggested that they should do a simulation — a customer-shopkeeper role-play — to figure out if they’re missing something obvious.
[Read more…] about Behaviouronomics: Mind Projection Fallacy

On the morning of January 28, 1986, the space shuttle Challenger caught fire and broke apart in the air just 73 seconds after its lift-off from the Kennedy Space Center. Unfortunately, all seven crew members perished in the disaster.

President Ronald Reagan appointed a commission to investigate the incident. The Rogers commission headed by William Rogers, after months of deliberation, published a report attributing the cause of the accident to a failure in the O-rings — a sealing joint on the right solid rocket booster.

From the post-mortem perspective, it was an adequate reason to conclude the investigation. Still, there was one person among them who disagreed with how the reporting was being done. The man was Richard Feynman — a Nobel Laureate and one of the most celebrated Physicists of the 20th century. Feynman, inspite of his battle with terminal cancer at that time, agreed to be part of the investigation.
[Read more…] about Behaviouronomics: Optimistic Probability Bias

Ignaz Semmelweis, a Hungarian medical doctor, lived during that time of the 19th century when the concept of germs had not been established yet.

In 1946, when he was appointed at a hospital in Vienna, many of the admitted mothers were dying of a mysterious illness. It was called puerperal fever or childbed fever and it was believed the cause of these deaths was ‘miasma’ or poisonous air.

On crunching data collected over a few months, Semmelweis figured that the mortality rate in the doctor’s ward was 10 percent and in the midwives’ clinic was 4 percent. This discrepancy was hard to ignore and led him to believe that the poisonous gas theory was bogus. He started looking out for differences between the doctors’ and the midwives’.
[Read more…] about Behaviouronomics: The Semmelweis Reflex

Gustav Heinrich Ralph von Koenigswald was a German-Dutch palaeontologist. His discoveries of hominid fossils in Java and his other studies in human fossil research made him the leading figures of 20th Century paleo-anthropology.

During one of his excavation trips to the Solo River at Ngandong, he thought of engaging the locals to assist him in finding the hominid bones. This move turned out to be one of the biggest tactical errors.

He decided to offer the locals 10 cents for every piece of hominid bone they could come up with. The scheme seemed to work until Koenigswald discovered that the locals had been enthusiastically smashing large pieces into small ones to maximize their income.

He failed to set the incentives thoughtfully and people optimized for maximum return on their efforts.
[Read more…] about Behaviouronomics: The Goodhart’s Law

Paras Chopra, an Indian tech entrepreneur, runs a successful (bootstrapped and profitable) SaaS company with annual revenue of 20+ million dollars. Recently he shared his experience related to one of his products. He wrote —

In June, we ran a test on our homepage and while I was looking at conversion rate by segments, I noticed that users from Windows had a 400% higher signup rate for VWO free trial as compared to users using Mac OS X.

Now, that’s baffling and our team spent a good deal of time trying to understand why was that happening. Someone in marketing hypothesized that perhaps Mac OS X users have a better design aesthetic and our homepage wasn’t appealing to them. Was it true?

However, the first conclusions are often wrong, especially when you’re dealing with complex systems.

Consider the case of a stock market investor who goes to a newly opened Mall and sees a long queue in front of a fast-food chain. Being curious, he finds that the fast-food chain is owned by a quick-service restaurant brand that has issued new stocks in a recent IPO.
[Read more…] about Behaviouronomics: A Few Data Biases