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Mental Games: Why are we so irrational?
Topic: Mental games
by Tom, Byron, Ellen and Elvina, 2022 Cohort
Mental Games: Why are we so irrational?#
How do we approach strategic challenges? How do we make logical decisions, and what makes them logical? More importantly, when and why do we fail to act rationally?
Logical decision-making is the core of every action - or inaction - we take in life. As (ideally) rational actors, we should make decisions that maximise our gains. For simple problems, this process is usually straightforward. However, problems are often complex and our ability to make the best decisions becomes strained. One cause may be increasing stakeholders with their own perspectives, interests, information and communication problems.
A well-known theoretical framework to explain and model decision-making is game theory. The field of game theory incorporates decision making with mathematical modelling to produce possible and preferable outcomes for complex interactions between parties. Game theory has evolved considerably since its origins in studies of zero-sum games. Now, the field models and predicts behaviour in many types of ‘games’. These include repeat interactions, games with asymmetric or constrained information or games with randomness involved.[1]
Of particular interest is how game theory strategies are to be viewed in light of irrational behaviour of actors. Such irrationality can arise when, for example, biases (whether individual or in groups) become prevalent. Or, when external factors birth limitations on actors’ available options and cognitive abilities. As these challenges are present and growing in today’s world, understanding how humans (and animals, and computers) may react to adversity in this context has countless strategic applications in policy, future planning, problem solving and decision-making.
Game theory has correspondingly evolved to meet these demands, expanding to fields including behavioural game theory to examine how people’s strategic decision-making behaviour are shaped by social preferences, social utility and other psychological factors.[2]
However, experiments still show that human behaviour remains unpredictable, even in simple games that should be easily predictable through modelling. Why is this so?
One explanation is cognitive bias: a psychological error that manifests when people subconsciously deviate from rationality when attempting to understand and simplify complex problems. Individuals create their own ‘subjective reality’ from their perception of an input, and this faulty construction of reality dictates their behaviour. Cognitive biases may lead to perceptual distortion, inaccurate judgment, illogical interpretation, or what is broadly called irrationality.
Cognitive biases persist in hundreds of forms. Commonly referenced types include confirmation bias, anchoring bias, prestige bias loss aversion and the Gambler’s Fallacy, where people believe the probability of an independent event happening is impacted by past events.[3] They can be socially dangerous as people are often unknowing victims due to the nature of cognitive biases. Other than being ever-present, these errors can have disastrous consequences when important issues are at stake and minute errors can have butterfly effects. This means that due to cognitive biases, people unknowingly and sometimes even confidently make baseless decisions that could prove to be a gross misjudgement.
Cognitive bias provides one explanation for ever-present irrationality. The challenge is to take that knowledge of the subconscious into ones’ own life. By working to make the subconscious conscious, we can work to remove harmful bias from important decisions and our society.
[1] For a brief introduction to technical game theory, see the following paper: Heiko Hotz, ‘A Short Introduction to Game Theory’ (Teaching Paper, 2006).
[2] For more information on behavioural game theory, see the following resources: Colin Camerer, ‘Progress in Behavioural Game Theory’, (1997) 11(4) Journal of Economic Perspectives 167; Colin Camerer, Behavioural Game Theory (Princeton University Press, 2011).
[3] For a more fulsome list of cognitive biases, see the following Wikipedia page: https://en.wikipedia.org/wiki/List_of_cognitive_biases
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Mental Games: Why are we so irrational?#
How do we approach strategic challenges? How do we make logical decisions, and what makes them logical? More importantly, when and why do we fail to act rationally?
Logical decision-making is the core of every action - or inaction - we take in life. As (ideally) rational actors, we should make decisions that maximise our gains. For simple problems, this process is usually straightforward. However, problems are often complex and our ability to make the best decisions becomes strained. One cause may be increasing stakeholders with their own perspectives, interests, information and communication problems.
A well-known theoretical framework to explain and model decision-making is game theory. The field of game theory incorporates decision making with mathematical modelling to produce possible and preferable outcomes for complex interactions between parties. Game theory has evolved considerably since its origins in studies of zero-sum games. Now, the field models and predicts behaviour in many types of ‘games’. These include repeat interactions, games with asymmetric or constrained information or games with randomness involved.[1]
Of particular interest is how game theory strategies are to be viewed in light of irrational behaviour of actors. Such irrationality can arise when, for example, biases (whether individual or in groups) become prevalent. Or, when external factors birth limitations on actors’ available options and cognitive abilities. As these challenges are present and growing in today’s world, understanding how humans (and animals, and computers) may react to adversity in this context has countless strategic applications in policy, future planning, problem solving and decision-making.
Game theory has correspondingly evolved to meet these demands, expanding to fields including behavioural game theory to examine how people’s strategic decision-making behaviour are shaped by social preferences, social utility and other psychological factors.[2]
However, experiments still show that human behaviour remains unpredictable, even in simple games that should be easily predictable through modelling. Why is this so?
One explanation is cognitive bias: a psychological error that manifests when people subconsciously deviate from rationality when attempting to understand and simplify complex problems. Individuals create their own ‘subjective reality’ from their perception of an input, and this faulty construction of reality dictates their behaviour. Cognitive biases may lead to perceptual distortion, inaccurate judgment, illogical interpretation, or what is broadly called irrationality.
Cognitive biases persist in hundreds of forms. Commonly referenced types include confirmation bias, anchoring bias, prestige bias loss aversion and the Gambler’s Fallacy, where people believe the probability of an independent event happening is impacted by past events.[3] They can be socially dangerous as people are often unknowing victims due to the nature of cognitive biases. Other than being ever-present, these errors can have disastrous consequences when important issues are at stake and minute errors can have butterfly effects. This means that due to cognitive biases, people unknowingly and sometimes even confidently make baseless decisions that could prove to be a gross misjudgement.
Cognitive bias provides one explanation for ever-present irrationality. The challenge is to take that knowledge of the subconscious into ones’ own life. By working to make the subconscious conscious, we can work to remove harmful bias from important decisions and our society.
[1] For a brief introduction to technical game theory, see the following paper: Heiko Hotz, ‘A Short Introduction to Game Theory’ (Teaching Paper, 2006).
[2] For more information on behavioural game theory, see the following resources: Colin Camerer, ‘Progress in Behavioural Game Theory’, (1997) 11(4) Journal of Economic Perspectives 167; Colin Camerer, Behavioural Game Theory (Princeton University Press, 2011).
[3] For a more fulsome list of cognitive biases, see the following Wikipedia page: https://en.wikipedia.org/wiki/List_of_cognitive_biases