We live in a world of information overload. Sorting out the wheat from the chaff is never easy particularly when so many of the 'facts' cannot be specified precisely. It is often difficult to make judgements from any set of data but when the information is known to be imprecise, drawing conclusions can be fraught with problems. Let's take the world of statistics and probabilities, starting with the former.
Benjamin Disraeli is attributed by many to have originated the phrase: "There are lies, damned lies, and statistics". Well perhaps before before exploring this statement further, it is worth drawing the distinction between statistics and probabilities. Statistics are numbers that represent facts and as such, deal with certainties, as long as good counting methods are employed. Probabilities, on the other hand, deal with the unknown. So Disraeli's statement is false if the implication is that statistics are a higher form of untruths than 'damned lies'. It is the misuse of statistics, very often linked with probabilities, that can result, intentionally or unintentionally, in something worse than 'damned lies'.
If the residents of a town, who are aged ten or over, are asked to report to a medical centre to have their heights and weights measured, then these measurements can be compared with the criteria for obesity and a statistic of the obesity of the population can be assessed. Let's assume the result was 34% of the population aged ten or over were, at the time the measurements were taken, technically obese. That measurement of 34% is a statistic. Now, if a government bureaucrat decides to use that statistic for other means, for example assessing the probability of obesity in the nation as a whole and publishes a statement to the effect: "it is likely that one in three of the nation's inhabitants over the age of ten, is obese", then the 34% is now a probability rather than a statistic. It would only become a statistic if it was supported by measurements taken of the entire nation's population. An assessment of probability based on the results of one town can be very misleading if the sample that was measured was not truly representative of the country as a whole.
One of the websites that I use for local weather forecasts, provides 'probability of precipitation' information, which is another way of saying the likelihood of rain. There is no indication of how that figure has been computed but there is likely to be a computer algorithm that might use current and historic data to assess the likelihood of rain. Note the last sentence used the words 'likely to be' and 'might use'; that sentence, therefore, has a probability of being correct and likewise a probability of being incorrect - just what can you believe these days?! Returning to the weather forecast, if the probability of rain is 70%, then the probability of no rain is 30%. This means that if I plan my day on the assumption that it is going to rain, then I might be (I've used the word 'might' again!!) very disappointed if it doesn't rain but I can't complain to the forecaster because he or she would point out that there was always a 30% probability of the rain not materialising. So what use is the forecast?!
I suppose our conversations would be very limited if all we communicated were certainties. There are very few certainties and none if we are talking about the future. Also the high probability, low impact events might be interesting but don't change our lives significantly. So if it doesn't rain tomorrow and I planned on it being wet, because the forecaster told me there was a 70% probability of precipitation, then my change of plan might be to do some gardening rather than work in the house. So what?! The real life-changers are the low probability, high impact events, very often not even considered. So if my house was hit and destroyed by a meteorite, oh boy that would be a life changer.
The more I think about probabilities, the more convinced I am that detailed long-term planning of our lives is a waste of time. We should live for the present, trying to improve our actions by learning from the past (positive and negative experiences) and attempt to use the present to make some positive impact on the future. In all probability you will agree with that........but then again, you might not! :-)
Thursday, 1 November 2012
Thursday, 13 September 2012
After all, we're related!
I am currently tending a very sick palm tree in my garden, which I think has had its roots attacked by hungry beetles. The symptom is a loss of leaves (fans) at an alarming rate and in the past week I have removed over twenty. I had a palm with a similar problem last year, which regrettably ended with the tree being chopped down. There is a small glimmer of hope with the current ailing patient because there is still some new growth from the crown, which might survive and if so, possibly grow and lead to further new shoots. But I know from my previous experience that I'm clutching at straws so as well as removing the poorly fans, I have tidied up the trunk and tried to give the tree a little bit of TLC and dignity during what could be the twilight of its life - after all, we're related! Now before you conclude that I'm off my trolley, let me explain my views on the relationships between me, the rest of mankind and other living species.
Let's start with our own species, homo sapiens. I am the result of a relationship between my two parents (two people). My parents were the results of relationships between two sets of parents (four people). My grandparents were the results of relationships between four sets of parents (eight people). Continuing this historic extrapolation and assuming my ancestral line remains 'pure' (an assumption that I will prove to be invalid later in this blog), let's look at how many people were associated with my current existence, at various points in history. If we go back eight generations, around the time Abraham Lincoln was born, there were 256 people responsible for my birth. Back to the time of Shakespeare and the number becomes 16,384. Twenty generations ago the number has risen to 1,048,576. This doubling every generation means that sixty-four generations ago, around the peak of the Roman empire, the number becomes one million trillion, which is several thousand times the number of people who have ever lived. If I now return to the assumption that my ancestral line is 'pure', clearly that can't be true and my existence, you're existence, everyone's existence is the result of a considerable amount of incest but far enough removed from the main family line so it wouldn't be obvious. This means that most people you come in contact with, including your partner, are probably relatives.
That's all very interesting but what does it have to do with my palm tree? The evidence for evolution is very strong. Indeed, biologists often make a distinction between the FACT of evolution (i.e. all living things are cousins) and the THEORY of what drives it (natural selection versus rival theories). The current estimate for the number of living species is around ten million. To draw all the relationships between the species in the form of a family tree on a manageable-sized piece of paper, is clearly impossible. The best illustration I have seen is the Hillis plot, which transforms the classic plot of a family tree into a more compact circular illustration stripped down drastically to around three thousand species in order to fit into even this huge diagram. In my view, what is more exciting than visual representations of genetic family trees, is what will be possible from processing genetic-relationship information. Over the past fifty years, computer processing power has followed something called Moore's Law. It is an empirical law and can be observed as the doubling of computer processing power in a given volume every eighteen months to two years. In financial terms, this means the cost of processing information is rapidly reducing. Current extrapolations suggest that by 2040 it should be technically possible and affordable to create a massive database of DNA sequences across all the animal and plant species.
So what about my palm tree? Well clearly there is very strong evidence that I have a genetic relationship with it and at some time in the future, probably after I have departed this world, it might be possible to 'plot' our relationship. So why shouldn't I show it the same respect as I should have for my own or any other species on the planet? I'll let you know if it survives.
Let's start with our own species, homo sapiens. I am the result of a relationship between my two parents (two people). My parents were the results of relationships between two sets of parents (four people). My grandparents were the results of relationships between four sets of parents (eight people). Continuing this historic extrapolation and assuming my ancestral line remains 'pure' (an assumption that I will prove to be invalid later in this blog), let's look at how many people were associated with my current existence, at various points in history. If we go back eight generations, around the time Abraham Lincoln was born, there were 256 people responsible for my birth. Back to the time of Shakespeare and the number becomes 16,384. Twenty generations ago the number has risen to 1,048,576. This doubling every generation means that sixty-four generations ago, around the peak of the Roman empire, the number becomes one million trillion, which is several thousand times the number of people who have ever lived. If I now return to the assumption that my ancestral line is 'pure', clearly that can't be true and my existence, you're existence, everyone's existence is the result of a considerable amount of incest but far enough removed from the main family line so it wouldn't be obvious. This means that most people you come in contact with, including your partner, are probably relatives.
That's all very interesting but what does it have to do with my palm tree? The evidence for evolution is very strong. Indeed, biologists often make a distinction between the FACT of evolution (i.e. all living things are cousins) and the THEORY of what drives it (natural selection versus rival theories). The current estimate for the number of living species is around ten million. To draw all the relationships between the species in the form of a family tree on a manageable-sized piece of paper, is clearly impossible. The best illustration I have seen is the Hillis plot, which transforms the classic plot of a family tree into a more compact circular illustration stripped down drastically to around three thousand species in order to fit into even this huge diagram. In my view, what is more exciting than visual representations of genetic family trees, is what will be possible from processing genetic-relationship information. Over the past fifty years, computer processing power has followed something called Moore's Law. It is an empirical law and can be observed as the doubling of computer processing power in a given volume every eighteen months to two years. In financial terms, this means the cost of processing information is rapidly reducing. Current extrapolations suggest that by 2040 it should be technically possible and affordable to create a massive database of DNA sequences across all the animal and plant species.
So what about my palm tree? Well clearly there is very strong evidence that I have a genetic relationship with it and at some time in the future, probably after I have departed this world, it might be possible to 'plot' our relationship. So why shouldn't I show it the same respect as I should have for my own or any other species on the planet? I'll let you know if it survives.
Monday, 3 September 2012
Thinking About Thinking
On a couple of occasions my wife has made the following comment on my behaviour: "You think too much". I have thought deeply about her observation! Human beings communicate using languages they have learnt but whatever the native tongue, language is full of ambiguities and prone to misinterpretation. So what did my wife mean by her comment? I don't think (there I go again!) that she could possibly mean I should stop thinking; after all, thought is the basis for almost all our actions and interactions, so it is going on all the time. If she had said: "You spend too much time thinking and not enough time doing", then I would understand where she was coming from, particularly as my 'doing-to-thinking ratio' is a considerably lesser quantity than my wife's.
One of the discussion groups I am currently participating in, on the subject of thinking(!), has touched on the issue of male versus female thought processes and particularly the key differences. A view has been expressed that women's thoughts tend to relate to the natural (real) world whereas men use their ideas to relate to the conceptual world and I quote one comment: "I think a woman might generalise men as dreamers who get wrapped up in their theories". Well I have to admit to being able to relate to that point of view and one of my favourite pastimes is thinking about thinking.
We are part of a complex system that we try to understand by using simple mental models of what we think is going on around us. Sometimes our mental models become very rigid preconceived ideas and even when 'reality' doesn't match our model, we are still reluctant to modify our ideas. What is 'reality'? Is my view of the world, which is my 'reality', the same as your 'reality'? We are each using our sensors - seeing, hearing, smelling, touching - together with complex processing, which draws upon experience, intuition, tradition, preconceived ideas - and forming opinions of the 'reality' that surrounds us. Sometimes we attempt to breakdown the complexity of the environment into simple building blocks. But that doesn't always work. Colours should be simple, easy-to-understand components but why does, for example, the colour of my house appeal to me but look crap to you? Are we seeing the same colour but processing it differently, or vice versa?
There can be a danger of trying to squeeze a non-linear world into our linear mental models. Cause and effect is a common view of 'reality' - this affects that, which affects this, which affects those........ etc - but it doesn't always work like that! A affects B, which affects C, which after time modifies A, which affects B, which after time also modifies A. So the simple linear model has time- dependent feedback loops creating a non-linear function. To understand even a comparatively simple non-linear A-B-C model, we have to view it from a system perspective, understanding not just the constituent building blocks, but also the relationships between them.
As we move from concepts to 'reality', we can direct our thoughtful energies towards trying to understand issues such as why did the economic crisis occur, how do we solve our financial woes, how many species are there on the planet, are homo sapiens the only mammals that pop up everywhere, are we taking more out of the planet than we are putting back in, is the planet warming, if so what can we do about it, why do we have wars,........???? The issues go on and on but every time we try to simplify them and tackle them in isolation, we usually fail. So that's why I see a benefit in thinking about thinking, because although traditional thinking has resulted in tremendous developments for mankind, we don't seem to be able to solve some of the real crunchy and destructive issues that we have created, which face us and will plague future generations. So OK perhaps I should spend more time doing rather than thinking but if we carry on doing what we're doing, why should anything change? We will only change what we are doing if we stop doing and think about it........just a thought!
One of the discussion groups I am currently participating in, on the subject of thinking(!), has touched on the issue of male versus female thought processes and particularly the key differences. A view has been expressed that women's thoughts tend to relate to the natural (real) world whereas men use their ideas to relate to the conceptual world and I quote one comment: "I think a woman might generalise men as dreamers who get wrapped up in their theories". Well I have to admit to being able to relate to that point of view and one of my favourite pastimes is thinking about thinking.
We are part of a complex system that we try to understand by using simple mental models of what we think is going on around us. Sometimes our mental models become very rigid preconceived ideas and even when 'reality' doesn't match our model, we are still reluctant to modify our ideas. What is 'reality'? Is my view of the world, which is my 'reality', the same as your 'reality'? We are each using our sensors - seeing, hearing, smelling, touching - together with complex processing, which draws upon experience, intuition, tradition, preconceived ideas - and forming opinions of the 'reality' that surrounds us. Sometimes we attempt to breakdown the complexity of the environment into simple building blocks. But that doesn't always work. Colours should be simple, easy-to-understand components but why does, for example, the colour of my house appeal to me but look crap to you? Are we seeing the same colour but processing it differently, or vice versa?
There can be a danger of trying to squeeze a non-linear world into our linear mental models. Cause and effect is a common view of 'reality' - this affects that, which affects this, which affects those........ etc - but it doesn't always work like that! A affects B, which affects C, which after time modifies A, which affects B, which after time also modifies A. So the simple linear model has time- dependent feedback loops creating a non-linear function. To understand even a comparatively simple non-linear A-B-C model, we have to view it from a system perspective, understanding not just the constituent building blocks, but also the relationships between them.
As we move from concepts to 'reality', we can direct our thoughtful energies towards trying to understand issues such as why did the economic crisis occur, how do we solve our financial woes, how many species are there on the planet, are homo sapiens the only mammals that pop up everywhere, are we taking more out of the planet than we are putting back in, is the planet warming, if so what can we do about it, why do we have wars,........???? The issues go on and on but every time we try to simplify them and tackle them in isolation, we usually fail. So that's why I see a benefit in thinking about thinking, because although traditional thinking has resulted in tremendous developments for mankind, we don't seem to be able to solve some of the real crunchy and destructive issues that we have created, which face us and will plague future generations. So OK perhaps I should spend more time doing rather than thinking but if we carry on doing what we're doing, why should anything change? We will only change what we are doing if we stop doing and think about it........just a thought!
Sunday, 12 August 2012
Memes and Genes
First here are two definitions from Dictionary.com:
Meme - a cultural item that is transmitted by repetition in a manner analogous to the biological transmission of genes.
Gene - the basic physical unit of heredity; a linear sequence of nucleotides along a segment of DNA that provides the coded instructions for synthesis of RNA, which, when translated into protein, leads to the expression of heredity character.
Meme is a much newer entrant to the English language than gene but which has a greater impact on our lives? That's a rhetorical question but even if it wasn't, the answer would probably be the type you would expect from an economist when you try to get her to commit to one of two possible economic forecasts - IT DEPENDS!
Genes travel vertically down family trees, from great grandmother to grandfather to mother to son........and so on. There is a 'dilution of the mix' through each hereditary step; we have 50% of our father's genes and 50% of our mother's genes. So the factor of relatedness becomes less with each generation, i.e. the great grandmother is less related to the mother's son, than the mother is to her son. Genes travel vertically but not horizontally, i.e. the father passes on genes to his daughter but not to his wife. Physical similarities can be genetic - 'he's got his father's nose', 'I can see you are mother and daughter'. But what about, for example, tempers and mood swings; are they hereditary (genetic) or copied behaviour (memetic)? Let's take a look at memes.
Memes are copied behaviour and although, as the definition implies, are analogous to genes, they are not constrained to be transmitted vertically down family trees and their 'mix' need not be 'diluted' when they are passed on. On the other hand, whereas genes are accurately copied, as DNA code, memes are very often approximated. If you have a particular religious belief, for example Christianity, you were not born a Christian but probably born from Christian parents. So at an early age you picked up Christian behaviour but YOUR version of Christian behaviour. Whereas your mother's and father's genes were faithfully reproduced to define the shape of your nose, your religious belief is one that you have formed and possibly continued to evolve, starting with the parental memes and picking up many other memetic influences as your mind and body develop.
Have you ever admired someone in authority, maybe a particular teacher when you were at school? Did your admiration cause you to pick up subconsciously some of his or her mannerisms? It does happen and that is a classic example of memetic behaviour.
Now let's return to my original rhetorical question, which has a greater impact on our lives - memes or genes? I said it depends, but on what? Genes and memes are inextricably linked because living organisms create memes. Genes can only be transmitted from parent to offspring and genetic transmission from generation to generation, takes many years. By contrast, memetic transmission is extremely rapid, often in hours rather than years, because the number of individuals that an individual can transmit a meme to is unlimited. Over the past ten thousand years, there hasn't been much change in humans at the genetic level but their culture, which is memetic, has experienced rapid developments. There is an on-going debate over 'nature versus nurture' on human behaviour, which in effect is questioning whether human attributes are inherited genetically, or developed through life memetically.
I still haven't given an opinion on whether genes or memes are the dominant factor on our behaviour and I won't! I would suggest you, the reader of this blog, should look back on your life and critically examine what has influenced your behaviour, positively and negatively. If you are able to undertake that analysis, you will be analysing memes. But you will still be left wondering whether your genetic make-up rendered you more susceptible to receiving particular types of memes and I am not sure you will ever be able to solve that conundrum, so the 'nature versus nurture' debate will continue!
Meme - a cultural item that is transmitted by repetition in a manner analogous to the biological transmission of genes.
Gene - the basic physical unit of heredity; a linear sequence of nucleotides along a segment of DNA that provides the coded instructions for synthesis of RNA, which, when translated into protein, leads to the expression of heredity character.
Meme is a much newer entrant to the English language than gene but which has a greater impact on our lives? That's a rhetorical question but even if it wasn't, the answer would probably be the type you would expect from an economist when you try to get her to commit to one of two possible economic forecasts - IT DEPENDS!
Genes travel vertically down family trees, from great grandmother to grandfather to mother to son........and so on. There is a 'dilution of the mix' through each hereditary step; we have 50% of our father's genes and 50% of our mother's genes. So the factor of relatedness becomes less with each generation, i.e. the great grandmother is less related to the mother's son, than the mother is to her son. Genes travel vertically but not horizontally, i.e. the father passes on genes to his daughter but not to his wife. Physical similarities can be genetic - 'he's got his father's nose', 'I can see you are mother and daughter'. But what about, for example, tempers and mood swings; are they hereditary (genetic) or copied behaviour (memetic)? Let's take a look at memes.
Memes are copied behaviour and although, as the definition implies, are analogous to genes, they are not constrained to be transmitted vertically down family trees and their 'mix' need not be 'diluted' when they are passed on. On the other hand, whereas genes are accurately copied, as DNA code, memes are very often approximated. If you have a particular religious belief, for example Christianity, you were not born a Christian but probably born from Christian parents. So at an early age you picked up Christian behaviour but YOUR version of Christian behaviour. Whereas your mother's and father's genes were faithfully reproduced to define the shape of your nose, your religious belief is one that you have formed and possibly continued to evolve, starting with the parental memes and picking up many other memetic influences as your mind and body develop.
Have you ever admired someone in authority, maybe a particular teacher when you were at school? Did your admiration cause you to pick up subconsciously some of his or her mannerisms? It does happen and that is a classic example of memetic behaviour.
Now let's return to my original rhetorical question, which has a greater impact on our lives - memes or genes? I said it depends, but on what? Genes and memes are inextricably linked because living organisms create memes. Genes can only be transmitted from parent to offspring and genetic transmission from generation to generation, takes many years. By contrast, memetic transmission is extremely rapid, often in hours rather than years, because the number of individuals that an individual can transmit a meme to is unlimited. Over the past ten thousand years, there hasn't been much change in humans at the genetic level but their culture, which is memetic, has experienced rapid developments. There is an on-going debate over 'nature versus nurture' on human behaviour, which in effect is questioning whether human attributes are inherited genetically, or developed through life memetically.
I still haven't given an opinion on whether genes or memes are the dominant factor on our behaviour and I won't! I would suggest you, the reader of this blog, should look back on your life and critically examine what has influenced your behaviour, positively and negatively. If you are able to undertake that analysis, you will be analysing memes. But you will still be left wondering whether your genetic make-up rendered you more susceptible to receiving particular types of memes and I am not sure you will ever be able to solve that conundrum, so the 'nature versus nurture' debate will continue!
Monday, 23 July 2012
Jack and Jill
Jack and Jill went up the hill........
It was the second time around for both of them. Jack had previously attempted a hill with Judy. Jill's previous partner was John. Their previous and latest partnerships were those well known legal contracts known as 'marriage'. In many countries more than 50% of marriages end in divorce, often acrimonious and very costly (financially and emotionally), and yet the majority of those divorced get married again!
So why was it going to be different for Jack and Jill this time around? Well they were both older, wiser and had the benefit of knowing what went wrong with their respective previous marriages. Those previous marital experiences had followed similar patterns. When the honeymoon was over, the partnership developed and enjoyed many pleasurable times as well as some inevitable difficulties and obstacles. If the problems are difficult to solve, many couples give up there and then but that was not the case for Jack, Judy, Jill and John. Instead each couple went down the path of pursuing separate interests, initially unintentionally, for many years, united only by the roof over their heads as well as sharing meals, domestic chores and the basic cost of living. Only when Jack met Jill did the two sets of marital equilibria become unstable.
Jack and Jill went up the hill to fetch a pail of water........
Yet most water collects in the valleys. Jack and Jill had got more than a modicum of brain cells between them so why weren't they aware of this basic physical fact? Were their aspirations unrealistic and could this have been a possible cause of their previous failed relationships?
Jack fell down and broke his crown and Jill came tumbling after........
The stories of this event suggest that the water had been collected before the accident so at least part of the aspiration had been achieved. That said, it is highly likely that Jack and Jill were absolutely knackered after climbing the hill and then to be loaded up with a heavy bucket of water, little wonder there was a mishap waiting for them on the way back.
Metaphorically speaking, the 'hill' could be mortgage commitments, children, pressure of work, extended family........life's a bitch! It still doesn't explain why having seen it before, Jack and Jill still persisted in climbing yet another hill. Maybe there was a difference, circumstances had changed and climbing the hill was less of a necessity than in times gone by. They had got enough water stored for their basic needs and so the venture became a shared and enjoyable means of creating a challenge to keep their bodies and minds fit and healthy. In short, they enjoyed climbing the hill because it might be the last hill they would climb.
Anyone who has read my blogs and books will know that I am not inclined to write fiction but like all good invented stories, there is usually a heavy injection of fact!........Happy climbing!! :-)
It was the second time around for both of them. Jack had previously attempted a hill with Judy. Jill's previous partner was John. Their previous and latest partnerships were those well known legal contracts known as 'marriage'. In many countries more than 50% of marriages end in divorce, often acrimonious and very costly (financially and emotionally), and yet the majority of those divorced get married again!
So why was it going to be different for Jack and Jill this time around? Well they were both older, wiser and had the benefit of knowing what went wrong with their respective previous marriages. Those previous marital experiences had followed similar patterns. When the honeymoon was over, the partnership developed and enjoyed many pleasurable times as well as some inevitable difficulties and obstacles. If the problems are difficult to solve, many couples give up there and then but that was not the case for Jack, Judy, Jill and John. Instead each couple went down the path of pursuing separate interests, initially unintentionally, for many years, united only by the roof over their heads as well as sharing meals, domestic chores and the basic cost of living. Only when Jack met Jill did the two sets of marital equilibria become unstable.
Jack and Jill went up the hill to fetch a pail of water........
Yet most water collects in the valleys. Jack and Jill had got more than a modicum of brain cells between them so why weren't they aware of this basic physical fact? Were their aspirations unrealistic and could this have been a possible cause of their previous failed relationships?
Jack fell down and broke his crown and Jill came tumbling after........
The stories of this event suggest that the water had been collected before the accident so at least part of the aspiration had been achieved. That said, it is highly likely that Jack and Jill were absolutely knackered after climbing the hill and then to be loaded up with a heavy bucket of water, little wonder there was a mishap waiting for them on the way back.
Metaphorically speaking, the 'hill' could be mortgage commitments, children, pressure of work, extended family........life's a bitch! It still doesn't explain why having seen it before, Jack and Jill still persisted in climbing yet another hill. Maybe there was a difference, circumstances had changed and climbing the hill was less of a necessity than in times gone by. They had got enough water stored for their basic needs and so the venture became a shared and enjoyable means of creating a challenge to keep their bodies and minds fit and healthy. In short, they enjoyed climbing the hill because it might be the last hill they would climb.
Anyone who has read my blogs and books will know that I am not inclined to write fiction but like all good invented stories, there is usually a heavy injection of fact!........Happy climbing!! :-)
Saturday, 23 June 2012
The Psychology of Spending Money
Perhaps the title of this blog should be 'The Psychology of Spending or NOT Spending Money'. What fascinates me and has encouraged this short article is people's views on the rights and wrongs or parting with their hard-earned cash. But first let's get back to basics - what is money? Money is purely and simply a means of trading. In my opinion it is one of the best of inventions in the history of mankind. Imagine living in a cash-less society, where trading is by bartering - my horse for your cow, my eggs for your beetroot, my iPad for your ??!!**! However, we mustn't lose sight of the fact that money per se, the coins, notes, bank and credit card statements, have little material value. It is the trading ability that is valuable. So my iPad might be bought by you for £200, which I could use to buy a pair of spectacles. The second-hand iPad has been traded for new spectacles using a third party. This demonstrates the flexibility and power of money.
The psychology of transactions really interests me and in particular how people tend to focus on the financial values of expenditure and income rather than how to use money to satisfy their needs and wants. Let's look at typical behavioural patterns for three examples of monetary transactions - buying and selling property, paying for medical treatment and buying insurance cover.
If you've decided to down-size your property in order to realise some cash and perhaps travel to places where you've always wanted to go but could never afford it, well that should be a fairly simple monetary transaction. You might think your house is worth £250k, you only need property for say £150k and so after an estimated £10k expenses you might net £90k for your travels. The property market is declining and after having your house for sale for 6 months you decide to suspend looking for your next property until your sale has been confirmed. You have also suffered the disappointment of several prospective buyers' views of the value of your house being lower than your expectation. It looks as though you're not going to get more than £225k and after about a year on the market, a cash buyer offers £220k. The £30k drop becomes a major issue to you. Why should I drop my price? I don't need to move. The buyer's offer is insulting. Three years ago my neighbour's house went for £260k (the fact that the housing market has dropped around 15% in that timeframe doesn't enter into your thinking!). The psychology of the monetary transaction comes into play because the £30k reduction is the new issue rather than what you want to do with your life, i.e. reduce your living space and travel. The £30k could probably be easily recovered by a combination of getting a good deal for your next property because you are a cash buyer and searching for bargains in the travel market for your worldwide excursions.
The next example is paying for medical treatment. Some countries such as the UK have 'free' medical treatment through, in the case of the UK, a National Health Service (NHS). It's not really free because it is funded by taxation so everyone pays whether or not they 'enjoy' any benefits. Now you would think any citizen who loves life would regard their own well-being as a number one priority. But when that priority is put to the test, it's not always demonstrated to be number one! In the UK, for example, the 'free' NHS treatment is seen as a basic right and the idea of paying to get a faster service for a non-urgent but nevertheless uncomfortable condition, is, for many people, not an option to be considered. The NHS does not have an unlimited budget and has to prioritise its treatments. So, for example, heart surgery would be a high priority, the removal of a benign external cyst might be a medium priority and an in-growing toe nail could be at the tail end (or even the foot end!) of the priority list. If your cyst operation has an 18-week waiting list but you can get private surgery next week for, say, £3k, you might think to yourself, why should I pay? In fact it could be a very small price to pay compared with the cost over the year of the substances you might buy to abuse your body, like too much salt, fat, carbohydrate, alcohol, cigarettes, junk food....do I need to name more?! Also the essential food items are very often consumed in excess or even thrown out.
My final example is insurance cover - the 'peace of mind' expenditure. Let me start with an indisputable fact - insurance companies make money. This means that their income from people paying insurance premiums, less the amount they pay out in claims, less their operating expenses, leave them with a very large operating profit. Do some simple calculations for yourself. How much have you paid out, during your driving career, for car insurance and is that more than the total cost of your claims? How much have you paid out for house insurance and is that more than the total cost of your claims? How much have you paid for medical insurance and is that more than the total cost of your claims? For most people the answers will be YES, YES and YES. There will be some variations but the reason I am confident with my 'most people' prediction is because that's why the insurance industry is so profitable. In other words, life is not as risky as we are led to believe but our fear of the unknown causes us to view insurance as a worthwhile expenditure. Perhaps it would be better to accumulate your own funds for unforeseen circumstances.
So there you have it folks, our spending habits are very often irrational and maybe that's because money distorts our perception of what we are trying to achieve, which, in the previous examples, were a rewarding lifestyle, a healthy body and a balanced view towards what reserves we require for unknown circumstances.
The psychology of transactions really interests me and in particular how people tend to focus on the financial values of expenditure and income rather than how to use money to satisfy their needs and wants. Let's look at typical behavioural patterns for three examples of monetary transactions - buying and selling property, paying for medical treatment and buying insurance cover.
If you've decided to down-size your property in order to realise some cash and perhaps travel to places where you've always wanted to go but could never afford it, well that should be a fairly simple monetary transaction. You might think your house is worth £250k, you only need property for say £150k and so after an estimated £10k expenses you might net £90k for your travels. The property market is declining and after having your house for sale for 6 months you decide to suspend looking for your next property until your sale has been confirmed. You have also suffered the disappointment of several prospective buyers' views of the value of your house being lower than your expectation. It looks as though you're not going to get more than £225k and after about a year on the market, a cash buyer offers £220k. The £30k drop becomes a major issue to you. Why should I drop my price? I don't need to move. The buyer's offer is insulting. Three years ago my neighbour's house went for £260k (the fact that the housing market has dropped around 15% in that timeframe doesn't enter into your thinking!). The psychology of the monetary transaction comes into play because the £30k reduction is the new issue rather than what you want to do with your life, i.e. reduce your living space and travel. The £30k could probably be easily recovered by a combination of getting a good deal for your next property because you are a cash buyer and searching for bargains in the travel market for your worldwide excursions.
The next example is paying for medical treatment. Some countries such as the UK have 'free' medical treatment through, in the case of the UK, a National Health Service (NHS). It's not really free because it is funded by taxation so everyone pays whether or not they 'enjoy' any benefits. Now you would think any citizen who loves life would regard their own well-being as a number one priority. But when that priority is put to the test, it's not always demonstrated to be number one! In the UK, for example, the 'free' NHS treatment is seen as a basic right and the idea of paying to get a faster service for a non-urgent but nevertheless uncomfortable condition, is, for many people, not an option to be considered. The NHS does not have an unlimited budget and has to prioritise its treatments. So, for example, heart surgery would be a high priority, the removal of a benign external cyst might be a medium priority and an in-growing toe nail could be at the tail end (or even the foot end!) of the priority list. If your cyst operation has an 18-week waiting list but you can get private surgery next week for, say, £3k, you might think to yourself, why should I pay? In fact it could be a very small price to pay compared with the cost over the year of the substances you might buy to abuse your body, like too much salt, fat, carbohydrate, alcohol, cigarettes, junk food....do I need to name more?! Also the essential food items are very often consumed in excess or even thrown out.
My final example is insurance cover - the 'peace of mind' expenditure. Let me start with an indisputable fact - insurance companies make money. This means that their income from people paying insurance premiums, less the amount they pay out in claims, less their operating expenses, leave them with a very large operating profit. Do some simple calculations for yourself. How much have you paid out, during your driving career, for car insurance and is that more than the total cost of your claims? How much have you paid out for house insurance and is that more than the total cost of your claims? How much have you paid for medical insurance and is that more than the total cost of your claims? For most people the answers will be YES, YES and YES. There will be some variations but the reason I am confident with my 'most people' prediction is because that's why the insurance industry is so profitable. In other words, life is not as risky as we are led to believe but our fear of the unknown causes us to view insurance as a worthwhile expenditure. Perhaps it would be better to accumulate your own funds for unforeseen circumstances.
So there you have it folks, our spending habits are very often irrational and maybe that's because money distorts our perception of what we are trying to achieve, which, in the previous examples, were a rewarding lifestyle, a healthy body and a balanced view towards what reserves we require for unknown circumstances.
Wednesday, 13 June 2012
Cause and Effect fooled me again!
I believe that over the years I have developed many of the skills of a systems thinker. What does that mean? Well basically I try to take a helicopter view of life, issues, problems, whatever. Looking at the relationships between issues as well as the detail of life's 'building blocks'. One of the attributes of a systems thinker is the ability to think beyond seemingly obvious cause and effect relationships and particularly not to jump to simplistic conclusions like, for example, A caused B, which caused C, which caused D. Therefore, A caused D - maybe! Life's relationships are rarely as simple as A, B, C and D. Cause and Effect are not always obvious. Here's a statement, which might not register immediately, but is very profound:
Correlation does not imply causation.
Correlation, the apparent dependency of two events, does not mean that one event caused the other to happen. Every morning at sunrise I hear a cockerel crowing and I also hear the Imam chanting a call to prayer from a nearby mosque. Does the cockerel crowing cause the Imam to chant? Unlikely. Does the Imam chanting cause the cockerel to crow? Also unlikely. Do either the Imam or the cockerel cause the sun to rise? IMPOSSIBLE? What is most likely is that the Imam's chant is timed to take place at sunrise and the transition from dark to light also stimulates the cockerel to crow.
Does the cockerel only crow at sunrise? I don't claim to be an expert on cockerels' habits but I'm sure I have heard cockerels crow at other times of day. Could the cockerel crow at midnight? Possibly. Would that cause the sun to rise? DEFINITELY NOT! So now I hope you have grasped the fact that correlation definitely doesn't imply causation BUT causation requires correlation.
Now let's move on to a recent example of correlation and therefore cause and effect, playing games with me. Every morning I charge my two phones, a BlackBerry and a Nokia. They don't always need it but rather than get caught with a flat battery I developed this daily routine, which I rarely forget to do, rather like cleaning my teeth. Earlier this week I went through my charging routine, first plugging the BlackBerry in to charge and automatically looking at the face of the phone to note the little icon signifying the phone was accepting a charge. Then I followed the same procedure for the Nokia. I first plugged it in to charge, looked at the face of the phone and there was no icon, it apparently wasn't charging! Without pausing for a period of rational thinking to explore the possible cause and effect scenarios, my mind went into auto! The charger must be defective so I will go into the town and buy a replacement. Should I buy a branded Nokia device or a cheaper alternative? If, say, the Nokia product cost 20% more than the alternative brand but would have twice the life, then the Nokia route would be preferable. In the meantime, my wife, Sandie, also has a Nokia phone, a different model to mine but the charger might be compatible, in which case I would borrow it as an interim solution. I left my chargers and went to see my wife, but before I could explain the problem she informed me we had just had a power cut! In the period of time between plugging in the BlackBerry and noting it was charging and plugging in the Nokia and noting it wasn't charging, the mains electricity supply had been cut - ELEKTRİK YOK as we say in Turkish!
Now you might be sympathetic towards me thinking it's a fair assumption that the charger wasn't working but I can assure you I do not deserve your sympathy. In the area where we live, the probability of a power cut is far greater than the probability of a Nokia charger failing. So the fact that the phone didn't indicate it was charging correlated with the charger being plugged into the mains should not, on that occasion, imply the charger was defective. I can wax eloquently on the virtues of systems thinking, the danger of using linear models for a non-linear world and the nuances of correlation and causation but........life's a bitch!
Correlation does not imply causation.
Correlation, the apparent dependency of two events, does not mean that one event caused the other to happen. Every morning at sunrise I hear a cockerel crowing and I also hear the Imam chanting a call to prayer from a nearby mosque. Does the cockerel crowing cause the Imam to chant? Unlikely. Does the Imam chanting cause the cockerel to crow? Also unlikely. Do either the Imam or the cockerel cause the sun to rise? IMPOSSIBLE? What is most likely is that the Imam's chant is timed to take place at sunrise and the transition from dark to light also stimulates the cockerel to crow.
Does the cockerel only crow at sunrise? I don't claim to be an expert on cockerels' habits but I'm sure I have heard cockerels crow at other times of day. Could the cockerel crow at midnight? Possibly. Would that cause the sun to rise? DEFINITELY NOT! So now I hope you have grasped the fact that correlation definitely doesn't imply causation BUT causation requires correlation.
Now let's move on to a recent example of correlation and therefore cause and effect, playing games with me. Every morning I charge my two phones, a BlackBerry and a Nokia. They don't always need it but rather than get caught with a flat battery I developed this daily routine, which I rarely forget to do, rather like cleaning my teeth. Earlier this week I went through my charging routine, first plugging the BlackBerry in to charge and automatically looking at the face of the phone to note the little icon signifying the phone was accepting a charge. Then I followed the same procedure for the Nokia. I first plugged it in to charge, looked at the face of the phone and there was no icon, it apparently wasn't charging! Without pausing for a period of rational thinking to explore the possible cause and effect scenarios, my mind went into auto! The charger must be defective so I will go into the town and buy a replacement. Should I buy a branded Nokia device or a cheaper alternative? If, say, the Nokia product cost 20% more than the alternative brand but would have twice the life, then the Nokia route would be preferable. In the meantime, my wife, Sandie, also has a Nokia phone, a different model to mine but the charger might be compatible, in which case I would borrow it as an interim solution. I left my chargers and went to see my wife, but before I could explain the problem she informed me we had just had a power cut! In the period of time between plugging in the BlackBerry and noting it was charging and plugging in the Nokia and noting it wasn't charging, the mains electricity supply had been cut - ELEKTRİK YOK as we say in Turkish!
Now you might be sympathetic towards me thinking it's a fair assumption that the charger wasn't working but I can assure you I do not deserve your sympathy. In the area where we live, the probability of a power cut is far greater than the probability of a Nokia charger failing. So the fact that the phone didn't indicate it was charging correlated with the charger being plugged into the mains should not, on that occasion, imply the charger was defective. I can wax eloquently on the virtues of systems thinking, the danger of using linear models for a non-linear world and the nuances of correlation and causation but........life's a bitch!
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