To Err Is Human

To Err Is Human

By He, Jibo

Everyone knows the old saying, “To err is human”. It is unavoidable for human being to make errors in decision making, because of our limitation of time, physical, cognitive, emotional and other resources. These limitations fail all our effortful endeavors to make perfect rational decision, and maximize our expected value. The same limitations harass the stock brokers in the Wall Street (Blodget, 2004), and doctors (Groopman, 20007). No matter how smart they are and how many tools they are armed with, they cannot escape from making bad decisions.

Everyone knows! Wait! But maybe not for classical economists. Unlike ordinary human, such as us, the economists are equipped with the most advanced mathematical tools and logic ability. They assume that human are Homo economicus, with unlimited resources in time, physical and cognitive ability, as well as stable preferences (Cassidy, 2006). The human in economists’ eyes makes rational decisions, and never err.

Economists are so smart and almighty that they have successfully attracted a great amount of followers, amongst of which include the stock brokers at Wall Street, and the educators of the doctors. They all pursue the dreams of rational decisions, which the economists depict for them. So the brokers developed all kinds of complicated tools and mathematics index, for example, NASDAQ index, K-line etc. But none of them successfully predicted the disastrous depression in 1929. And it is worthy to note that the economists, the dream designers of perfect decision, have successfully predicted the 10 economic depressions for the only 5 actual depressions in the past 30 years. Under the illusions of perfect decision makers, the educators of doctors are also temped to believe that the candidate doctors are born to know how to apply their knowledge, and they would be perfect decision makers as long as they are taught the practical aspects of patient care. Techniques on how to make decisions are ignored and seldom taught in medical schools (Groopman, 2007). However, according to the survey of Croskerry, a physician at Dartmouth General Hospital, the perfect decision makers assumed by the economists actually misdiagnose fifteen percent, or even more, of the patients. And most of the misdiagnoses are the results of errors in thinking.

The consistent failures of human in decision making call doubt about the rational approach to decision making by economists. Kahneman and Tversky developed the Prospect Theory in 1979, which marked the trend of naturalistic approaches to decision making. And some other behavioral economists, neuroeconomist adopted empirical research methods to investigate into human decision making process. These well-grounded researches call on our attentions to the limitations of human, and doubted on the unrealistic assumptions of Homo economicus with unlimited abilities and resources by classical economists. Human, as decision makers, are constraint by their limited physical, cognitive resources, unstable preferences and emotions, and the impossibility to make concise prediction of risk. Rather than perfect rationality in economics, human decision making is bounded rationality as a result of all kinds of limitations. We regret loss, so we are loss aversion; we seeks to build our self-esteem by all means, so we shows confirmatory bias in decision (Blodget, 2004); we have limited memory ability, so we rely on representative and availability heuristics in decision making. Etc.

To err is human. Economists’ escape from accepting the facts that we are limited in resources does no good to help reduce human error in decision making. We have to face up to our constraints in decision making, and get aware of and trained to avoid these limitations.

REFERENCES

Cassidy, J. (2006). Mind games: what neuroeconomics tells us about money and the brain. The New Yorker. Source:http://www.newyorker.com/archive/2006/09/18/060918fa_fact

Groopman, J. (2007). What’s the trouble? How doctors think. The New Yorker. Source: http://www.newyorker.com/reporting/2007/01/29/070129fa_fact_groopman

Blodget H. (2004). The greatest Wall Street danger of all: you. Slate.

Source: http://slate.msn.com/id/2110977/

Kahneman, D. and Tversky, A. (1979). Prospect theory: An analysis of decision under risk. Econometrica, 47(2):263-292.