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Eureka: The pseudo-science of the unknown
by Jay Gutman
2018-04-15 06:12:07
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The biggest loser in the hit game show Deal or No Deal. One American man had a one in two chance of winning a million dollars and a one in two chance of winning one dollar. There were two cases left, one containing one dollar and the other containing one million dollars. The bank made an offer of 416,000 dollars, that is he could take that amount and leave.

unkn1_400“Your case has a million dollars, your case has a million dollars” kept yelling his select group of friends. His mother, more cautious, told him not to gamble and to take the bank offer. But no one told him clearly that there as much of a possiblity that his case contain one dollar as a possibility that it contain a million dollars. No one told him “picture this, what would you do if we opened the case and it only had one dollar in it. Because that's a possibility. What could you buy with one dollar? A chocoloate bar. Some choccolate bars cost more than a dollar. And what could you do with 416,000 dollars? Maybe buy a house and keep it for life. And a car for that matter. Are you going to trade a house and a car for a chocolate bar?” No one told him to picture himself winning one dollar for a second.

In the contestant's mind, there was no doubt. His case had a million dollars. Only when he opened it, it only had one dollar. He turned down 416,000 dollars. The science of the unknown is not just a gambling problem, it's a life problem. Few people think the guy or girl they have a crush on would turn them down. In elections, many candidates overestimate their chances of winning. Few people had imagined for a second that Donald Trump would win the American election. People overestimate their chances of getting that job they applied for. And once on the job, few people imagine that they could ever get fired.

Just like the Deal or No Deal contestant could not picture for a second the possibility of his case containing one dollar, most criminals don't picture the possibility for a second of being arrested and jailed for their crime. When companies launch a product, a lot of them don't picture the possibility that the product will flop. When launching a start-up, few imagine scearios where  the start-up would fail to make money and would have to fold.

Let's put things this way. You've noticed people going to Vegas, Atlantic City, Monte Carlo, Macau or Gangwon Land and gamble. One observation I've made is a lot of them act like they've won the jackpot before they even start gambling. A lot of people who gamble going on a shopping spree before they gamble, buy that fur coat, that expensive handbag, that hand made custom made tailor suit, that brand name briefcase and those brand shoes. Some even engage in other risky behavior, like getting a mortgage on an expensive house or leasing an expensive car, and are convinced that they are going to Vegas to win. They don't imagine for a second that they will lose in Vegas. They imagine that they will win big, and that their expenses and  debt will be covered.

Let's talk about people when they're in love for a second. They become attracted to someone, and start making changes in their life to accommodate that person they are attracted to into their life. They find out about the person's tastes, start redecorating their home or their room, start grooming themselves to accommodate that new person, even pick up hobbies and passtimes or shopping habits to accommodate that new person. Only to find out the attraction is not reciprocated. But to them, reciprocated attraction was guaranteed. They saw the signs as they say, signs that the other person was interested in them, just like gamblers invent all kinds of superstitions to justify their winnings. In the Deal or No Deal case, the contestant thought case number 11 contained 1 dollar, when it contained a million dollars. His friends' argument for not taking the 416,000 deal is that number 11 is a cursed number because he “hates the month of november.”

Now to business. When setting up start-ups or businesses, or launching new products, some people find all kinds or arguments why their product launch will be successful. They are convinced there will be a demand for the product and that people will flock in to buy the product. They don't imagine for a second that the product could flop. I remember a businessman who set up an educational video business and who was behaving like a tycoon before the product was even released. The product flopped miserably, but the guy still behaves like a tycoon.

The problem is we tend to have blindspots when predicting the future and seeing the unknown. In the case of the Deal or No Deal contestant, his eyes went blind on the one dollar case and just did not see it. To him, the case just had to contained a million dollars and all they had to do was open it. In love, in business, in gambling or in education, most people tend to think that the odds are in their favor and don't see the odds not in their favor. 

The reason I'm writing this op-ed is that so far in the literature I have seen economists discuss gambling or future events in terms of probability and reasoning fallacies. That is economists were convinced that gamblers knew what the probabilities were, but just didn't understand the probability correctly. Unfortunately, I believe that's now how it works. Most gamblers don't reason in terms of probabilities, they reason in terms of certainties, as in certainty that they will win. When they enter that casino, they are convinced they will leave a millionaire.

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