Human Errors

by Nathan H. Lents

  Researchers led by my colleague Professor Deryn Strange at John Jay College demonstrated this memory distortion with a clever set of experiments. They asked volunteers to watch a short film depicting a real fatal car accident in graphic detail. The film was split into a series of scenes separated by blank footage. Those blank spots represented missing elements—scenes that had been deleted. Some of those missing scenes were traumatic (for example, a child screaming for her parents), while others were nontraumatic (for example, the arrival of a rescue helicopter). Twenty-four hours later, the viewers returned and were given a surprise test probing their memory of the film they were shown as well as their thoughts and recollections about the film.

  The participants scored well on their ability to recognize scenes that they had indeed been shown. However, about one-fourth of the time, they “recognized” scenes that they hadn’t actually viewed. They were far more likely to overremember the traumatic scenes than the nontraumatic ones, and they did so with confidence.

  In addition, some viewers reported symptoms that were analogous to PTSD. They reported thinking about the traumatic scenes when they didn’t intend or want to and avoiding things that reminded them of the film. Interestingly, those with the PTSD-like symptoms were more likely than the others to overremember traumatic elements of the film that they hadn’t actually seen. This is further evidence of a link between PTSD symptoms and memory distortion.

  This consistent quirk of memory formation demands an explanation. Why would a brain with such exquisite cognitive abilities engage in self-harm by exaggerating past trauma? Is this simply an error and nothing more? Does the human brain, which after all only recently evolved such complex cognitive functioning, get overwhelmed in times of great emotional stress and make sloppy mistakes?

  Maybe, but there might be a more interesting explanation. This process of false-memory formation could actually be adaptive. One possible benefit of exaggerated trauma recall is that it might serve to reinforce fear of a dangerous situation. Fear is a powerful motivator and a very important conditioning mechanism for avoiding danger. Normally, fear and aversion toward something eventually wanes if people are not repeatedly exposed to it. The strange quirk of remembering traumatic events as even more traumatic over time may serve to counter the normal tendency of fear to wear off. So again, we have a feature that is a bug—or vice versa.

  The House Always Wins

  As bad as humans are at accurately remembering things that happened in the past, they may be even worse at evaluating things experienced in the present. This is pretty remarkable when you consider how essential this basic skill is to our species’ survival and well-being.

  As you go through life, you are constantly bombarded by input from the world around you, and you can navigate this sensory storm only by making countless, often very quick decisions, hopefully more good ones than bad. To do that, you have to assign value to various things, people, ideas, and outcomes. Your brain then measures the value of various outcomes and makes decisions that add or preserve value rather than deplete it.

  Psychologists and economists agree that the way that people behave at a gambling table is just about the purest manifestation of what can go wrong in how humans measure value, particularly the value of money. Most humans are not very good with money. Because money can be gained and lost so quickly and easily, gambling is an incredibly focused way to probe for deep truths about how we approach problems of valuation. A great deal of psychological and economic research has focused on how humans make choices while gambling.

  This is not just an academic exercise. Gambling behaviors translate into many other areas. Depressingly, the lessons researchers learn about decision-making at the gambling table are often generalizable to how people live their lives.

  For starters, most people are terrible at the basic logic of gambling. Of course, the whole enterprise of gambling is illogical to begin with; the odds always favor the house. People know this. They know that casinos make money at their expense. Yet they gamble anyway, presumably because the thrill of the experience is worth something to them. They value the experience of it and consider gambling a hobby like any other—golfing, going to the movies, whatever. The money lost at the gambling tables is like the price of admission—no big deal. They know this at the outset and enjoy the exhilaration that comes with throwing their hats into the ring for a big payoff.

  But gambling is different from other forms of entertainment in one crucial way: people dramatically, and consistently, overpay for it. The vast majority of people who go to casinos walk out of them having lost more money than they intended to. When you ask gamblers at the beginning of the night how much they are prepared to lose and then ask them at the end of the night how much they have lost, more often than not, they have lost more than their set limit. In fact, if you told them at the beginning of the night the actual amount of money they would lose, most of them wouldn’t enter the casino. It may be true that people enjoy playing at the tables, but the explanation that is often given after losing money—that it was really just about having fun—is an ex post facto justification that allows them to deny, even to themselves, that they have made poor choices.

  The poor decisions that people make when gambling demonstrate some defects in the human psyche. Perhaps the most revealing ones—and the ones most worth mentioning—are those with parallels to other aspects of daily life.

  Many gamblers begin the night with a set amount of money that they are okay with losing. Let’s say that, for one gambler, it’s a hundred dollars. When he sits at a blackjack table that has a five-dollar minimum bet, he will usually bet one or two chips. He wins some; he loses some. An odd thing often happens if he starts winning money: he bets more. This is the most illogical thing anyone could do. If you find yourself up fifty dollars and then start betting twenty dollars instead of your usual five, it will take you just two or three bad hands to lose what it took you ten hands to win. Remember, if you play long enough, the house will eventually win. By increasing your betting when you’re up, you accelerate the pace at which you’ll be giving your winnings back to the house.

  If you find yourself up by a fair amount, you should celebrate your good luck by betting less, not more. If you do that, you have a fighting chance of going home without losing. Of course, the only real way to win is simply to quit altogether when you’re ahead, but almost no one can do that. People who are that powerfully governed by logic are unlikely to find themselves in the casino in the first place.

  Casinos know this well. What do they do when someone has a hot streak at the table? Why, they send him free drinks. If he keeps winning, he’ll get a voucher for the premium buffet. If his good luck just doesn’t seem to run out, he’ll find himself with a complimentary room in the hotel. The more money he wins, the nicer the room. Casinos want their high rollers in deluxe suites designed to make them feel very powerful and important.

  Why do the casinos lavish such gaudy gifts on someone who has just taken piles of their money? To ensure that he doesn’t leave. The more gifts they give, the longer the gambler will stay. The longer he stays, the more likely he is to cough up his winnings. In fact, because of the false sense of his own skill he acquired while racking up his temporary purse, he’ll probably end up losing far more than he would have tolerated had he not found himself up in the first place.

  However cautious and determined people are when they begin, their good judgment goes out the window once they start to win. It’s almost like they are determined to give back their winnings—and that is precisely what they do.

  This behavioral defect can be seen at work in our daily lives. People become less careful when they have more resources, which only ensures that they will soon part ways with those resources. We all know people who are perpetually penniless, often for valid reasons, like being a student, having a low-paying job, or having financially burdensome family and living expenses. But when these paupers come into a small sum of money, what do they do? Too
often, they blow it rapidly.

  Why do they do this? They finally have some financial resources that could be used to pay off nagging debts, upgrade a car or apartment, or make some durable purchase or sensible investment, but no. They blow it on fancy clothes, expensive dinners, or nights of debauchery. This is not rational behavior. The joy they get from these dramatic expenditures is fleeting, while the debts they accrue are lasting. Most of us are very good at stretching a dollar when we have to but not so good at making frugal choices without pressure. A small windfall could be used to make wise purchases that would provide long-term payoffs and even help save money in other ways, but most people are not capable of making good choices in that scenario.

  An even more widespread psychological flaw that is especially apparent in casinos is something known as the gambler’s fallacy. This is the belief that a random event is more likely to happen if it hasn’t happened in a while or that a random event that has just taken place is unlikely to take place again any time soon. Assuming that the events are unlinked, this is a complete delusion. In gambling, as in many situations in life, the past has no bearing on the present.

  When I’m at a casino (and I do go occasionally, since—like everyone else—I’m not a perfectly rational being), one of my favorite activities is watching players at the roulette wheel. If the ball comes down on, say, 00 on the roulette table on one spin, there is nothing making it less likely to come down on 00 on the very next spin. The odds are exactly the same on each spin. Conversely, if a number has not been landed upon for several spins, the odds of it coming up in future turns are no greater than they were in the past. This is basic logic—yet, inevitably, you will see players who have successfully bet on 00 shy away from that number in the next few spins. Or, if this same number hasn’t won in a very long time, you might see a bettor putting lots of money on it spin after spin. When it eventually wins, he will immediately start looking for another number to play—again, one that hasn’t won in a while. Casinos are happy to list all the previous winning numbers on the roulette table. They know that it doesn’t actually matter but that hapless gamblers like this hypothetical sucker think it does.

  Why do people fall for these tricks? Do they believe that the ball or the wheel somehow knows what happened in the previous spin and that this somehow forces a different outcome on the next spin? Of course people don’t consciously think this. But they do somehow think that the universe makes more sense than pure randomness would generate. Indeed, the gambler’s fallacy is deep-seated in the human psyche and sometimes disguises itself as intuition. If someone gives birth to three baby girls in a row, many people are convinced that the next one will be a boy. If this happens, their instincts are validated. If it doesn’t, they shriek, “Wow, another girl! What are the odds?” About 50 percent, actually. The three hundred and fifty million sperm that raced toward the egg that grew into that baby were blissfully unaware that three females had previously passed through there. Each birth is like a coin flip. A coin has no knowledge of its previous flips. It’s possible to flip ten heads in a row. When you go to flip the eleventh time, the odds are fifty-fifty that it will be heads again.

  What explains the gambler’s fallacy? Evolution. Our brains are like computers that evolved mostly to run programs called heuristics. Heuristics are rules that the brain establishes in order to make sense of the world quickly in ways that will help it (hopefully) make good decisions. When you observe something, you often unconsciously translate it into a larger pattern and assume that what you have observed is representative of a larger truth. It’s true that this skill was and is extremely useful. If an ancestor of ours observed a lion hiding in shrubby underbrush, she might reason that shrubby underbrush was a spot where lions could be found, and she would be careful to avoid areas like that in the future. She extrapolated a larger truth from a single data point—and possibly saved her own life in the process.

  As useful as heuristics are, mental shortcuts can actually trip us up when we encounter a data set that is boundless. This is because the human brain is not built to comprehend infinity; we are trapped by the limits of finite math. For instance, when it comes to coin flips, we know that things should work out to fifty-fifty odds. So if someone observes four heads in a row, his brain applies this observation to a finite data set. The unconscious reasoning is something like There were just four heads in a row, so there needs to be some tails coming soon in order to achieve the required fifty-fifty ratio. This small-number thinking probably served our ancestors well in the development of pattern recognition and learning, but in modern times, it misfires in various ways, particularly when we’re faced with probability and the math of big numbers.

  Back to our gamblers. As if failing to quit while they’re ahead weren’t bad enough, people also have difficulties in quitting when they’re already deep in the hole. How many times have you heard someone say (or said yourself), “Oh, just one more hand and I’ll get it back,” or the even more explicitly wrong “The house owes me after those last few hands,” as if some ledger is being kept and the cards (or dice or roulette balls) must act to balance out past injuries. Nothing could be farther from the truth. When you’re in the middle of a losing streak, it’s worth remembering that the odds are slightly better that the streak will continue than that it will improve because, as always, the odds always favor the house.

  The failure to quit when one is down is due to a related, possibly connected, fallacy termed sunk costs. Part of the reason that people have trouble walking away after losing money at the blackjack table is the notion that the money lost would be “wasted” if they didn’t stay to try to win it back. Of course, this is a fallacy on top of a fallacy because nothing done in one hand can improve the odds for the next, but that doesn’t stop people from thinking this way. The sunk-costs fallacy often gets wrapped up and packaged with wise legitimate investment practices, such as the notion that you have to spend money to make money and other such truisms regarding future rewards.

  Remember: Not all money spent is an investment. Some money is simply lost, and trying to get it back should never be used as a reason to stay in a losing situation. If the dealer draws blackjack, neither the house nor the universe owes you a damn thing. This does not mean you are more likely to win the next one. You are in exactly the same place you were, just a little bit poorer. If the dealer draws twenty-one ten times in a row, he is just as likely to draw it again in the future. None of your lost bets buy you future odds. That money is simply gone.

  The fallacy of sunk costs can be seen in every sphere of human activity, not just in the casino. For instance, many amateur investors—which is almost everyone with a 401(k)—will consider how much they spent on a stock before deciding whether or not to sell. This makes no sense whatsoever. The only factor you should consider in deciding whether to sell or hold a stock is your belief about its future performance. It doesn’t matter if you purchased it a day, month, year, or decade ago. If you think the stock will go up over the time you can hold it, you should hold it. If you think it will go down, you should sell it. It’s that simple.

  Now, there might be good reasons to hold a losing stock. The price may be artificially low because of unfounded investor panic about the company or because of a temporary market depression that is likely to subside. Those are valid reasons. How much you paid for the stock when you first bought it is irrelevant. And yet, this is what people often consider most. In fact, most portfolio managing programs make this easy: They include a column, usually right next to the current value, indicating what was paid for the stock. This is a shame because it reinforces the notion that it matters how much you’ve lost or gained in the past in deciding what to do going forward. If a stock has been steadily declining, that’s a sign that it may be time to sell. However, a lot of times, people put off the inevitable decision to sell to see if they can catch it on an upswing and at least get back what they paid for it. While they wait for that, the price continues to fall, and they lose more
money.

  It’s not just the stock market. The fallacy of sunk costs can influence lots of financial decisions, usually for the worse. For example, when it’s time to sell property, people are very reluctant to do so at a loss. They will hold on to houses and other property for extended periods, waiting for the market to recover so that they can recoup what they paid for it. That may sound like a sound financial move, but it costs money to hold on to properties; there are annual tax bills, utilities, and maintenance costs. People rarely consider those costs when they hold on to a house longer than they should. In addition, if the property is not being used for housing or to generate income, that capital is simply tied up doing nothing when it could be doing something.

  The sunk-costs fallacy dooms decisions people make as individuals as well as ones they make as a society. Soon after the U.S. invasion of Iraq, it became clear that the continued military occupation of the country was no longer fruitful for anyone involved. The U.S. military had “won” the war by deposing and disarming the previous regime, but in the wake of this destabilization, widespread violence, terrorism, and chaos reigned. The United States continued its occupation with the goal of rooting out the insurgent fighters and bringing stability to the country. Eventually, the continued presence of American troops was itself a destabilizing force, the linchpin of radicalization and terrorist recruitment. Even after everyone began to acknowledge this grim reality, there was strong resistance to pulling military forces out of Iraq. The political arguments routinely invoked the “lives lost” and the “money spent” arguments. We’ve already given so much—it can’t all be for nothing! America may certainly have a moral responsibility to try to help the Iraqi people, but that’s a different issue—one whose solution cannot be a military one.