In his new book, Risk Savvy, Psychologist Gerd Gigerenzer uses this ‘Turkey Illusion’ to challenge our reliance on data.
Imagine you’re a turkey. As a turkey you don’t know about Thanksgiving or Christmas. Every day a farmer brings you food, so despite your fear on day one, each day’s experience builds your certainty that visits from the farmer are a good thing. Your assumed probability of survival increases every day, until, at the point of highest certainty, you become dead meat.
Gigerenzer asserts that intuition and heuristics (i.e. mental rules of thumb) can often trump data, even in areas like financial forecasting. He draws turkey parallels with the financial crisis in 2008, arguing that updating probabilities based on experience isn’t a bad model per se, but in situations with unknown risks (e.g. Thanksgiving), it can create ‘illusory certainty’ and catch us out.
One study on financial forecasting found that laypeople using gut instinct to predict stock-market trends are accurate 50% of the time, whereas financial experts are accurate 40% of the time (Torngren and Montgomery, 2010).
Risk Savvy identifies two types of decisions:
When data is best:
- Complex, stable choices (i.e. low uncertainty)
- With few risk factors
- And lots of data
When heuristics are best:
- Unstable, globally-connected choices
- With many risk factors
- And small amounts of data
Being too reliant on data-points to justify our decisions can also cause people to be overly risk-averse and adopt defensive decision-making practices. We touched on the problem of corporate habits in a previous post.
So what might organisations do differently?
- Internally, educate people about their own biases and decision-making tendencies.
- Create a culture which recognises the value of intuition as well as data.
- Externally, use insights about decision-making tendencies to create more effective marketing content and customer experiences.