Teppo Felin of the University of Oxford talks with EconTalk host Russ Roberts about perception, cognition, and rationality. Felin argues that some of the standard experimental critiques of human rationality assume an omniscience that misleads us in thinking about social science and human capability. The conversation includes a discussion of the implications of different understandings of rationality for economics, entrepreneurship, and innovation.
United States


00:00:04welcome the econ talk part of a library of economics and liberty I'm your host Russ Roberts at Stanford Steve who for instance our website is econ talk dot org for you can subscribe to comment on this broadcast and find links and other information related to today's conversation but
00:00:21also find our archives we listen to every episode we've ever done going back to two thousand and six our email addresses male econ talk dot org we'd love to hear from today is July nineteenth twenty eighteen and before introducing that is cast I want to mention I'm planning
00:00:38to do at least two econ talk episodes in early September on the book in the first circle by Alexander Solzhenitsyn so feel free to read that in advance and follow along if you'd like I've decided with those are gonna be regular econ talk episodes are bonus he contact
00:00:53at the Serbs are but if you wanna be prepared for those by having read the book odd now would be a good time it is a seven hundred and forty one page read are so be aware what you're getting into announces on Twitter yesterday an Amazon is now
00:01:08sold out of the paperback the candle is still of a conversion course is still available but I recommend the paperback there's a lot of characters and even though there's a list of characters and you can highlight them on the candle I think a paperback is easier I read
00:01:24it on the kindle and found it US somewhat challenging house when I mention their two versions of the book the original version is the first circle you want to get in the first circle associates in self censored the first one to get it published and we'll be discussing
00:01:40the four one called in the first circle and now for today's guest tempo for lane tempo is a professor strategies say in business school university of Oxford his areas of expertise include strategy entrepreneurship and innovation complex systems and competitive advantage temple welcomed econ talk thanks for having me
00:01:59our topic for today is an essay you wrote the fallacy of obviousness which you published a on dot com will put a link up to that of course and before we get to that essay in some of the academic work that's behind it that you've done I want
00:02:11to encourage listeners to watch a YouTube video it's called selective attention test you can find that video you contact or get the page for this episode under the heading delve deeper recombine things related to our conversation or you can just Google selective attention tested should be the first
00:02:29video that comes up it is a minute and twenty two seconds so we're not driving I encourage you to pause this conversation watch the video and you get a lot more and enjoy this conversation more if you do that advance in your potentially avoid a spoiler Simon account
00:02:45to five you the chance to pause a minute before we start talking about it one two three four five okay your back we're back so tap out this video which now has about nineteen million views was created by Daniel Simons and Christopher terrorists to psychologists and what it
00:03:06tells described the video and tell us what conclusions are sometimes a cherished right from it and what other people said about it so in the video %HESITATION as you mentioned you're asked to sort of watch something it's called selective attention test and in the video in the first
00:03:23screen does your listeners who did it the test and ask you to count the number of basketball %HESITATION passes made by the team wearing black I think it I believe in in the video what you see is two teams one wearing white shirts when weighing blackshirts passing a
00:03:37basketball and essentially turns out to be a relatively sort of attention %HESITATION heavy task and so you're trying to count these basketball passes I actually just did this with my father in law when he came to visit doctor last week and sure enough he managed to count the
00:03:54right number of basketball passes by made by this team %HESITATION wearing %HESITATION black jerseys and and in in the in the clip you have three to two teams like I said and and and total of sort of six players three on each team and blows **** like basketball's
00:04:12around right so you have to kind of focus yeah yes exactly up and so my father what turned to me and he said he's a top I nailed it I got it exactly right it's twenty one passes and so I asked him I said you know did you
00:04:26see the gorilla and he just stares at me at and now I've done this exercise with students in years past as well and it turns out that sort of some proportion of people %HESITATION Dave run different conditions in terms of which you know team you're paying attention to
00:04:40how fast the gorilla whether stops in the middle and so forth but sort of some range between you know twenty thirty to seventy eighty percent of people Mr girl essentially and and the the inference that that %HESITATION Christopher should brace and and Daniel Simons draw from this is
00:04:56that %HESITATION %HESITATION people are %HESITATION what will they call inattentional blindness and so the argument is that because we're paying attention to something else we miss things that are also happy in the screen that you think we would catch somehow but it turns out that we don't see
00:05:14the gorilla and like I said a sort of surprise as most of us and I guess the the the interpretation the the or re interpretation that I try to sort of highlight in the E. on essay is that this you know this we can look at this test
00:05:28in a couple different ways one is that you know people are blind and and I actually sort of in the in the essay anchor a little bit on condom is a term petition of this exact experiments on his book thinking fast and slow he says no this tells
00:05:40us two fundamental things about the mine namely that you know humans can be blind to the obvious and war where soda oblivious to this blind us essentially telephone before you go on it we should make it clear for those of you did not watch the video but it's
00:05:56there's nothing subtle about the gorilla it's not like you disorder jumps on the screen for a second disappears he wanders around he's he's a it's a human being in a gorilla suit and yes when used when you watch it the second time he's blindingly obvious is absolute very
00:06:12very present installing to track it was just a trick but it's not the trick that you might think if you if you're hearing this describe for the first time it's shocking that anyone misses the girl and am absolutely yeah yeah so and so the question is sort of
00:06:27what's what's the interpretation of that and and and you can sort of read the Sabri's sand Simon's interpretation so this was published in the journal perception in fact it's the hot most highly cited peace in their journal and they're sort of interpretations waffles a little bit between sort
00:06:42of saying okay humans are blind war is just an example of focus but if you look at what they're so emphasizing and actually measuring is it's the fact that you know many people miss the gorilla that's sort of the surprise and like I said that's sort of been
00:06:57taken to it and interpret it in different ways and in for for me it's sort of effort and sort of highlights sort of a certain ethos search site guys around what we're looking for in terms of you know %HESITATION human nature and and particularly interpretation that Kahneman emphasizes
00:07:13that becomes quite important throughout his book and for me more broadly in behavior economics is that there's this sort of %HESITATION you know humans are blind blind to the obvious that are that we missed some really fundamental things in our in our visual in our visual %HESITATION I'm
00:07:28scenes and this is been taken by others like Steve Steven Levitt and others as sort of it's kind of a culminating summary of of what it is that behavioral economics is after as well and I I guess %HESITATION you know my my sort of challenge to that is
00:07:43that it's it's a little bit of a Rorschach test in terms of what we can say with that data so I don't I don't have an issue issues any issues with the finding itself so we could sort of all a kind of the reproducibility efforts or %HESITATION you
00:07:57know going to replicate this finding and I think that any number of people just like my father in law would would also missed the gorilla the question is what precisely is it telling us about perception about awareness and I think more fundamentally about human nature and I guess
00:08:13that's what's most important to me because this this could sort of guerrilla study has been a sort of a big jumping off point for for the authors themselves a breeze and and Simon's they were a book called invisible girl in other ways our intuitions deceive us and so
00:08:27there's a strong emphasis on sort of humans being blind %HESITATION susceptible illusion and so forth and and and my challenge would be that the dead essentially illustrates something different slightly more mundane in some ways but I actually think quite powerful important and it's it's sort of that angle
00:08:45that I think is important and that I try to sort of push in that essay and then in the Associated sort of academic pieces that we also published and I I want to say I think on the surface this topic of the of the guerrilla and our blindness
00:09:02to the obvious or some other interpretation it seems like kind of a in a narrow of in narrow thing to have any kind talk episode about but I actually think it's quite deep and I hope in the course of our conversation that we can tease out some of
00:09:21the implications of your interpretation of this very specific social science experiment to lead to some implications for economics writ large and how we think about data and how we understand the world and when you say human nature I really think of it as more brighter than units through
00:09:39it like this I brought it up but it is really I think your insight into this which we're going to get to right now your insight is that it tells us a lot about just the whole enterprise of being human and trying to understand the world in its
00:09:53complexity so you you in giving an alternative interpretation talk about the fallacy of obviousness what do you mean by that yeah so I I I think sort of fellows or is so so obviousness is is is a little bit of a a trap so I think that many
00:10:10things are sort of obvious in retrospect but %HESITATION obviousness is is never sort of a pari evidence unless we're looking for something specific right and and so I guess the the the the issue that I have with the test than and it's something that it sort of highlights
00:10:25more broadly in terms of like said human nature and other issues that we'll talk about is that my concern is that the interpretation that humans not just the obvious isn't the right one rather the right one is that people respond to questions so we tend to our visual
00:10:39scenes with questions in mind and then we focus our attention and that's partly what service of reason and Simon say in their arguments but then if you look at the subsequent emphasis in terms of what condiments says and and in terms were behavioral economics has sort of taken
00:10:54the seat those the emphasis is largely on by a seasoned steaks and sort of isn't fun they are yeah failure and and and and like I said it's sort of what led to other directions that I talk about in the NSA which is sort of you know denigrating
00:11:09human nature more generally and saying well well we'll solve these problems with artificial intelligence and and dodges and your other types of things and and and like I said the the more powerful point to me which isn't the emphasis of the article is is that you know there's
00:11:22a set of questions whenever we're attending to visual scenes that direct are are aware of what our awareness and so when I'm looking for my keys so I tend to frequent lose my cell phone and my keys I have sort of a an image in my head in
00:11:36terms of what I'm looking for and I'll miss any number of other things as I'm scanning and until I find sort of the answer in the same way that you know subjects or doing this test billeted Teletoon themselves to basketball passes but they'll miss any number of obvious
00:11:51things and so in the art a on article I talk about you know in that clip there's many obvious things there's obvious obvious %HESITATION there's there's on for example the gender composition of the team's passing the basketball what color hair they have what color the carpet is or
00:12:07it ends up that actually in the background there's two letters spray painted in so I could ask people afterwards and say what were the two letters that were spray painted the very obvious in the clip right but I would miss them because I'm paying attention based on cues
00:12:20primes prompts questions problems that I have to attend dreck my awareness to certain things in any visual scene and and and and so it's it's it's sort of emphasizing that %HESITATION that powerful our focus and awareness that we have based on what's in our mind essentially and Sabri's
00:12:43assignments which sort of I think highlight that but like I said the emphasis is on the blindness and that's what they measure is how many people miss the gorilla not how many people attended to acts whatever it might be in the you know individual scene that we're looking
00:12:55at I think it's really a deep insight into the nature of reality which is again why I think it's a it's a larger even than human nature rallies really bad complicated up and our brains relentlessly due to things that are contradictory they feel and stuff that we might
00:13:14not be saying because right to make it are easier to interpret that complexity so my favorite example there's some drive to school my sons on his way I'm driving with my wife to my summer work here at the Hoover Institution at Stanford and my son is riding a
00:13:32bicycle he doesn't want to drive once arrives biking he's gonna arrive roughly the same time for his first day at work on campus yeah and I'm worried he's going to be late and these teenager who's never had much of a job before trouble years ago and he's going
00:13:50the other direction hype as we pull up I see him bicycling away from where his interview as someone of things I'm worried about is courses that he's this is first day stock in our going no where to go and I jump out of the car where I'd get
00:14:04to where I need to get out and I yelled his name and to my horror he didn't respond so I yelled even louder and then I was puzzled and disturb because he was wearing a clearly a backpack that wasn't his and of course that's because it wasn't him
00:14:21it was somebody looked vaguely like in my mind build in and told the story that said my son's going the wrong way ridiculous absolutely ridiculous my wife actually some later that day the same guy actually looked a lot like my son helped make the story work but my
00:14:37mind told a ridiculous story building details made it him when it wasn't him right at the same time I will tune out a thousand things I see every day in my house to ease not consciously to ease my perception of the world and you know I I always
00:14:56like to point out if you put a bunch of things on your wall because you think they're beautiful your guests will enjoy them because they will notice some after a week a month a year five years ten years you won't enjoy their work in your house so much
00:15:10because your brain I won't see it just to get out when I've used this example before getting government warnings on cigarette packages %HESITATION bottles of alcohol for pregnant women driving machinery you know the first time you say it's like whoa the fiftieth time you literally don't see it
00:15:27and that's part of what I think that's really interesting and important but it doesn't mean we're blind right and I I guess part part of the fallacy of obvious for obvious this for me is precisely about the nature of reality and so there's a sense in which obviousness
00:15:42is sort of given by reality itself right so route reality itself has certain characteristics and in terms of size or color and so forth and this is actually tradition that Kahneman comes from so he's trained in an area called cycle physics in the sixties which was an area
00:15:58sort of tried to map environmental stimuli on to the mind and in in his in his Nobel speech he sort of talks about these what he calls natural assessments which is sort of size loudness you know essentially the world tells us what's what's obvious and so if you
00:16:12take this into the grill a clip you'd say how would anybody miss this massive moving saying going across that's very surprising because it should be it should be obviously a thing that we recognize that we pay attention to and so forth and so it comes from this notion
00:16:29that reality sort of gives us what's relevant and meaningful or obvious and the argument of the essay is that there's nothing there's there's nothing like obviousness obviousness is a function of what's in our mind to the questions that we have the problems that we have and how we
00:16:44had sort of a tune to the world and so it sort of trying to flip the importance of %HESITATION rather than looking at nature out there looking at the organism looking at nature and the questions that a house and and there's actually some really interesting sort of biological
00:16:59insights for insights from biology that sort of also you know verify this that this is while some start by the parallel to the episode you can talk about it with the a Gilchrist we're talking about two different ways of thinking the left side of the brain is very
00:17:14focused on a task like his example of a bird trying to separate a piece of grain from the dirt and gravel may be around it got to really pay attention to the to that little piece of grain threat is gonna be oblivious potentially to a predator so with
00:17:29the right side of his brain he's kinda looking around all the time and you can see animals do this in the animals socially birds because they're very prone I guess to being eaten up her constantly on alert they can't they they look very stressed out all the time
00:17:43land there constantly and animals feeding will often do this is what other it you know for like animals do this when they feed they don't just Chow down they Chow down nervously they're always trying to scan the horizon for grow up her press something large and obvious and
00:18:00we do alternate I think is going beings between these two modes the more focus mode the more integrated taken the whole scene how do I fit in what ago Chris because calls connected as you're between us my relationship to all kinds of things around me and does rally
00:18:16isn't one of those things or the other it's both of those things right it's right it's the world's basically the other you know the other side is a world full of data lots of data and there's no there's no sense in which all that data support and this
00:18:30isn't don't know what those which falls into which category advance ex ante to tell me the girl I will miss it you tell me right when Israel come on screen I'm not going to I mean I can be blind to the obvious I'll get it right yeah but
00:18:44it all depends on what my task is what might exert on what's important right yeah I I guess that's an issue that I sort of reflect on the essay as well is that there's this sense that yeah the world will tell us what's obvious and and and the
00:18:59whole sort of after all the attention on things like big data and so forth seems sort of reinforce this idea that you know data will tell us the truth but from my perspective you know data is only as good as the questions and the theories that we have
00:19:14a essentially and so so it's not the amount of data rather that it's it's the questions that we ask of it and so I I have a co author that's here at the Alan Turing institute and they just ran from these mega mega data sets and you can
00:19:26run all kinds of correlations and and you know so forth but but you you know you don't get anything out of it and tell you how of some kind as informed at gas and theory about what types of relationships we might you know expect and and so that's
00:19:42why %HESITATION %HESITATION for example there's this wired piece that sort of talked about the end of end of theory how the delusion data well sort of you know replace science or something like that and I just find that to be at the biggest US of a misnomer I
00:19:57I I I I think that it you know theory and problems and questions are more and more important in in this farmer because data never so has some kind of meaning or relevance attached to it it's only useful in answering questions and and and and in the same
00:20:12way as as as that girl a clip sort of illustrates and so yeah I have mentioned the story before but I have I have %HESITATION I've heard a number of young communists and and I don't mean literally young but just trip trained a lot more recently than I
00:20:28than I was say that you know we don't need Terry we just listen to the data and I was going to say the data doesn't speak the data silent the only way to get the data to talk is to have a way to think about it a perspective
00:20:40the lands of theory and I get a quote items up Sam Thompson is a commenter on or something I read a long time ago said something very profound shows like quote the universe is full of dots connect the right ones and you can draw anything the question is
00:20:58not whether the dot you picked a really there but why you chose to ignore all the others in Iraq you know those correlations in big data there's there's an there's zillions decide which ones are meaningful which ones are replicable which ones are causal that's what matters for human
00:21:14affairs not patterns in the data being these are really good a I am a large really good at finding patterns that may I guess it's better than I am I'm really good at it as a human being it's one of my weaknesses right so we can better but
00:21:29that's not that's not a selling point that's does it means it's got a bigger flaw that I have yeah I guess the other issue is that I don't think the da more data in some situations will even sort of tell us sort of the troops right so if
00:21:42we if we had more data on this guerrilla experiment I I I I I you know I think this is you know so there's a sort of read reproducibility and replication crisis I think that what what's there is in crisis of the sort of interpretation and theory in
00:21:56terms of what it what are the types of questions that we're asking and if we have the sort of a priority of focus in fetish with sort of looking for %HESITATION you know bias and blind us and bound and us then we'll probably find some again some sort
00:22:11of all seeing standard but I think that what's remarkable is is is human nature in terms of what is accomplished and if you look at the you know I study innovation and creativity and things like that and and it is hard to sort of argue with the with
00:22:25the date in the sense of you know that the world that we live in currently in the amazing conveniences and and things that we have around us that have been accomplished despite the fact that we miss you know the occasional gorilla or or what have you and so
00:22:38so I think that there's sort of a crisis of interpretation that I'm sort of trying to channel little bit in that essay and and and so that associate academic pieces in terms of of of Bob what are the questions that we're asking and maybe these a power he
00:22:50sort of this a party focus on blindness is leading us to sort of craft these %HESITATION bias centric %HESITATION outcomes %HESITATION that you know they tell us interesting things but but I don't know if they tell something fundamental about again human nature and and the the nature of
00:23:09reality in the ways that we could we could do so want to turn to one of those academic papers %HESITATION which as the title rationality perception the all seeing eyes you publish in the second omics Bolton a review in you co wrote it with cyan contouring kit and
00:23:24you all came Krueger and in there you critique covered Simon and Kahneman %HESITATION both of whom are very dismissive or critical of human rationality and they're eager and and much of their careers of parts that their most famous for most known for is their insights into our irrationality
00:23:46in it as you point out earlier it's such a big part of of the ethos of April economics is to point out our irrationality and you point out that there's a certain I would call cheating and that and more in underline what they assume so explain explain what
00:24:02they claimed talk about irrationality in Khan from Simon and what he was trying to do and and and Kahneman stress on that and then why you think they're missing something so first I wouldn't call it cheating I don't know that this is sort of unethical deliberately by any
00:24:17means I but but I but I think that it's it's it's %HESITATION yeah but I guess I have sort of and and and I should recognize John and you and you know come on this as well we have some sort of concerns about where that has taken us
00:24:30essentially and so so you know her assignment essentially is one of the early people to sort of introduce you know different sort of ideas from psychology into economic certainly Hayek another's you know were there as well but %HESITATION at her Simon's first two pieces published in psych and
00:24:50in psychological review and in %HESITATION curly journal of economics in nineteen fifty five fifty six arguably those sort of where the basis of his %HESITATION Nobel Prize which he got in nineteen seventy eight and %HESITATION is interesting as I sort of trace the history of this %HESITATION in
00:25:06those papers Simon makes the argument that the sort of you know hyper rational omniscient rational expectations actor he says listen it's not a real thing and so what he does is he coined the term which is you know about a jury rational actor and and this is turned
00:25:23out to be really influential so it's such as the central to sort of all we have since transaction costs economics but it's become really important in artificial intelligence you know her son was a pioneer in that they were Williamson and the sun will both the Carnegie Mellon together
00:25:37and and %HESITATION but but when you go back and read those original art our articles it's interesting that the emphasis there is on specifically on perceptions so it's of the similar foundations to wear a condom and starts in the sixties and so this is sort of forties and
00:25:51fifties he basically says that rather than assume so imagine an organism sort of this looking for fruits of this your previous example Dan rather than sort of somehow a mission Lee seeing all food sources on some kind of landscape and going to the best sources as you know
00:26:07animals organisms are bounded by you know some kind of range of vision what they can see immediately around them and and and so he coined this term abounded rationality that's very sort of you know perception centric and perception of focused but it comes from this perspective where %HESITATION
00:26:26the emphasis is on on on the boundedness that scientists themselves who sits sort of in an all seeing position specify and say look you know in this environment you know humans %HESITATION make these types of mistakes because they can't see everything but we as scientists can see everything
00:26:44and this is sort of if you follow the sort of the the %HESITATION the bread crumbs has led to the work the Kahneman did in the sub school work on nudges and you know in other types of things but the argument that we make is that you know
00:26:56the perception in terms of specifying it as sort of this a range that's that's bounded or blind is directed by something else and that something else is sort of foreshadowed in the essay but in the work that yon and you'll come and I did it with their we
00:27:11sort of try delineate the actual sort of theoretical arguments which say that now we need to look specifically at the organism in terms of what is in its %HESITATION all the language disorder works quite well is comes from the C. colleges to lives in in the nineteen thirties
00:27:28and forties Jakob one hook school who talked about animals humans as well having this because those who built which is sort of a search or seek image and so what you have in mind is you're looking for something and that's that's what's your well that's what guides your
00:27:44sort of awareness and attention in the case of humans that's those are the questions that were sort of prompted with our prime with or that we have in mind that direct our attention so just give you one example of this from sort of the bio biological context if
00:27:58you have a frog that sitting right in front of the fruit food source so it's got a cricket right in front of it but the cricket doesn't move at all the font of the frog will recognize it as the frogs Zulu built or search image is a certain
00:28:13size saying moving at a certain speed Dennis snaps like that then it then it then it's tongue goes and gets the thing right and and so the frog would starve in front of a perfectly good food source %HESITATION in lesson moves and that's sort of the analogy that
00:28:30we try to bring in which is that you know we need to understand the schools built or the theory the problem question that economic actors have when they're attending to their worlds and and the direction that the the the so the behavioral angle has gone is more focused
00:28:46on the bind bound in this in the blindness and we have any number of there's actually if you go to wikipedia side to look at lists of calling to buy as these it's in the hundreds I mean there's just so many of them and and and so there's
00:28:56a lot of emphasis on this and I guess part of the worries that sort of taking up the oxygen in terms of how we think about again human nature and reality is the emphasis is so strongly on on on on that on that bound and us and and
00:29:09like I said I don't think that there was so the any cheating involved I think that there's models in which sort of this bounded rationality is work works and to be useful but but but I also think that it's it's now taking us to a place where that
00:29:22emphasis on on the blindness house house people missing some really fundamental things about human nature which actually you know some social scientists like Adam Smith and others talked about a long time ago and so I I found some sort of really nice insights from those types of places
00:29:40because I think they give us a better conception of how we think about human actors in their environments rather than sort of setting up scientists as sort of you know these are missions all freeing beings that sort of point out human failure in fable four bowls and so
00:29:54forth think it's incredibly important because especially this point about omniscience and just that observation I make one of things I learned from reading your work is to think about that just that concept that the scientist the outsider the policy maker often acts as if they were omniscient they
00:30:16have all the information which coursing can't they doubt %HESITATION so there's sure to levels to the claim about blindness right one is you're you're missing the for a food source I know about that's better okay so you did your out foraging you're the animal foraging for food and
00:30:32you realize that over the hill there's this fantastic stuff and you could imagine it even you don't even think to imagine that you say you missed it and I know there for the years you have a sub optimal performance and I'm gonna therefore subsidize your climbing the hill
00:30:47and make cheaper middle level the hill and allow you to get to the quote better food source said that's better course to fine by me so one level that strange is that is that you know obviously I it may not actually be better I've decided is the scientist
00:31:04that you've made a suboptimal choice and we see this in development economics all the time we see a lot outsiders giving locals advice on what to plant without realizing the complexity we get there or they introduce a piece of technology not realizing that it won't be used because
00:31:21it conflicts with cultural norms of that culture of the local culture shot we see it when %HESITATION just just the way we have to say that your flawed you're in perfect any other scientists claims to know and it is the one of the ways this manifest itself the
00:31:39drives me crazy and risk taking and people say oh you're you're making the wrong choice on some piece of uncertainty it neglecting the fact that that a choice that I make that has uncertainty around it can lead me to sleep worse that I turned down a risk because
00:31:58I'll be don't you realize expected value of thinking why would you ever make that judge on the behalf of another human being people do we do it as policy makers and as social scientists all time so I think this idea of nation states and is important you mention
00:32:12this how do you pronounce died Jacob or Jakob's sweaty pronounces name it's school in school in school let's don't exclude find a link to something as last name which is tougher Google is you he acts K. U. L. L. you mentioned one of his concerts when I liked
00:32:29was built which and I'm quoting you know you say by which he meant the context of existence he noted that quote Mrs looks kill every animal is surrounded with different things the dog is surrounded by dogs things and the directed lie is surrounded by dragonfly things this is
00:32:47you coming commenting these Elton our surroundings are not objective but they comprise with the organism attends to seize and ignores handsome Felton very across species even across individual organisms then a species and of course I know you agree with this people make mistakes all the time are flawed
00:33:07they have lots of cognitive biases we talk about him all the time on this program but they did that I can tell you what yours are right is %HESITATION is arrogant I'll never forget the world class lawyer who told me that his we couldn't have up we could
00:33:23have also security or forced retirement plans because his secretary would never be able to make those decisions for myself this was a man who confessed to me that he picked individual stocks didn't have any index mutual funds and I suggested that maybe he suffered from this site this
00:33:37was and it was a crazy idea for him to have no problem looking down on his his secretary I had course number looking down at him I might be wrong as well but but the idea that somehow there's this objective truth out there that did the scientist for
00:33:51the expert policymaker can know and that others cannot know seems to be a very dangerous idea that I mean this is played out actually read and really interesting ways I ran into this I don't just couple months ago in internal political economy army knowledge and has this piece
00:34:07on sort of uncertainty and equilibrium so for anybody %HESITATION it's a great piece on %HESITATION and Edith Penrose wrote this response in American economic review she sort of calls out Allchin exactly on this issue saying that listen in and find the quote here real quick she says for
00:34:25for the life of me I can't see why it is reasonable on grounds other than professional pride to endow the economist with this unreasonable degree about omniscience and prescience and not entrepreneurs and basically saying that you know we we were sort of looking at markets and and and
00:34:41saying that there's no opportunities and in in markets and and and look we can we can sort of prove this through various formulas and you know and so forth our math but %HESITATION none the less this on missions that week sort of give ourselves as scientists why can't
00:34:58we just assume that there's something about these actors themselves in terms of the theories that they have she doesn't use this language I'm sort of pose on top of that the theories that they have at because you know they're trying to in on certain environments make sense of
00:35:12the situations best they can write end end and thought to be important I think the the the interest of the department might be really interesting to hear your listeners is that this this notion of omniscience the way it plays out I I kinda like the sort of thought
00:35:27experiment about sort of on five hundred dollar bills on on %HESITATION on %HESITATION sidewalks and so it's it's one that's used by our attacker Lawson and yell and and and and rover and and %HESITATION many many sort of economists and and basically the argument is that you know
00:35:42they're no five hundred dollar bills on on sidewalks if there were someone would stick them up already and it's almost the sort of the the equivalent of this notion of natural assessment that the economy and has that that sort of the world is obvious in the case of
00:35:58economics that things have labels on them a price right and and and and so that price tells us how how you know how valuable something is and if it's really valuable ill get picked up essentially but but the argument here is that that there's no way to sort
00:36:13of value and label and create relevance and meaning for every single thing out there in the world essentially so so economic actors or or so the hijacking man on the spot is constantly sort of looking and finding new uses and sort of affordances for various items that are
00:36:32novel and novel and new and I think that's that's that's a really sort of important point to sort of think about that omniscience and and and how our models might need to change to sort of recognize that these economic actors and agents are also sort of see a
00:36:50red call it a you don't see radical beings in some sense and they're trying to make sense of the of the situations that there and certainly they're making mistakes you know that which is inherent to you know what they're doing with an entrepreneur is doing but but but
00:37:04you know giving giving them the benefit of the doubt I guess in some ways some I think another way to think about it is that of the five hundred dollar bills for lying around earn disguised you don't say five hundred dollar bill on them I think about about
00:37:22Fred Smith when he started federal express and you can mention this recently on the first night it was open they delivered two packages one was a birthday present was saying was mom the other was their only real piece of business they were pretty discouraged and after a few
00:37:37weeks or maybe months on how long it was they realized they were gonna make it Smith went to Chicago from Memphis to try to get one more loan they turned him down he's coming back to close the company and if that had been the way it played out
00:37:53people what is said about what a stupid mistake you made trying to deliver packages overnight it's not profitable didn't realize that instead he went I think he's on the board at the airport a flight leaving for either I think was re now someone about a they got on
00:38:07it and put all this money maybe some of the sisters money got sued by sisters for ratings their family trust fund and put it all on the roulette wheel on red or whatever was revenge and have to win and made payroll for another week or month and therefore
00:38:20had a chance and they start to grow and I made it right now everybody can say with a giant billion dollar fifty billion dollar bill laying around overnight delivery and he was the only one we know what it takes a wise are picking up earlier in the answers
00:38:34because stock it's not announcing it's not beeping does right to such an important point about the way innovation takes place the examples that I think %HESITATION that I like there's always too many Steve Jobs sort of examples of everything but I quite like this example so when when
00:38:52Steve Jobs was sort of you know creating the original Macintosh this is captured and Walter Isaacson biography but also in several other places when he walked into Xerox parc so he would he knew the CEO of Xerox parc I believe that was so he was based in in
00:39:06in New York but he was walking through Xerox parc there in Silicon Valley and he had a chance to sort of see this all this sort of dormant late and technology the Xerox wasn't using because they're busy you know and with the copier business is so poor and
00:39:20the way that that sort of describe when he saw the graphic user interface in the mouse he stayed there several sort of quota his it's a sort of all kinds a light bulbs going off and saying holy cow like this is it like did this this is gonna
00:39:32solve a major problem and any number of other people had sort of scanned through and seeing what was happening there so I think it was my co author actually spent spent time and was at Xerox park around the same time work through any cities like you know not
00:39:45no alarm bells nothing went off when he is looking at this technology because he doesn't have the school built towards this sort of seek image something a problem and and and so in that case they didn't have a label didn't say this cost one million dollars or there
00:40:00wasn't a market for it this wasn't being auctioned there's nothing for it in fact what Steve Jobs the arrangement that he made was that was the company was a lot Xerox was allowed to I think it was invest two million dollars an apple and then they sort of
00:40:13just took the technologist something like that came up with the exact you know arrangement was but the basically you know things that are incredibly valuable aren't you know they are priced necessarily and and and and and and so it's it's sort of the soup at the questions the
00:40:29problems the economic actors have then sort of helps those light bulbs and helps create that salients I guess for what forcing sat for other people might be just trash or just this is just engineers sort of messing around and technology will be relevant to anything right and and
00:40:46and so it it's important to sort of think through the desert built on the on the theory that these economic actors house so yeah I like tying it to the first example so Steve Jobs watching the video when he sees the growing as a my gosh there's a
00:41:00gorilla is basketball players he's in for him that graph graphical user interface was the girl it was so blindingly obvious to him that that was something of incredible value no one else thought and I so what is that you know as I say they were rational they didn't
00:41:16realize how we had a different way of saying he had a he knew what is you say you know what question to ask which was you know a question he'd been asking and he saw this as a solution for asking questions not a solution just exactly just a
00:41:30a toy something exciting people had fooled around with it was a a cool bit of achievement that you'd show often and had no act practical application he saw that right that that it had a practical application of the idea of seeing innovation entrepreneurship as I I think it
00:41:50is at this it's subtle point you make I think it's it's it's hard to understand but I think it's there there's a difference between perception certainly in visual perception that I would go back to the foraging example yeah I look all around and very thorough I don't see
00:42:06any food look all around they're into realizing go over the hill reside climb up the tree I just look at the base of the tree missing and so the person who comes along and has that innovative insight %HESITATION is able to see perceived in a richer different way
00:42:25you would want to call the first for some blind everything but everything so I think the whole idea that perception %HESITATION sort of what's in your field of vision is not really the interesting question exactly yeah and I and I guess that that's part of the concern I
00:42:42have is that the sort of this discounting of people's beliefs and other types of things and I I the psychology that we've introduced this for for for my taste really one sided and so if you look at the original if you look at the work of people like
00:42:54William James and others it's it's a far richer conceptions of of human beings and and and it's it's you know human beings are during by their beliefs for example and so you have beliefs that %HESITATION that will then lead you to see certain things and and this for
00:43:09me ties into people like Adam Smith and so a book that I quite like it you know along with the original work obviously of song about an Smith is is is an open the Rothschilds whose an economic historian at Harvard has this book called economic sentiments but initiate
00:43:25sort of quotes Adam Smith has wanted to get into this into the sentiments and minds of the actors and then she has the sort of summary that I like it's not Smith saying but it's it's her summary of what Adam Smith was out after which is that Adam
00:43:38Smith was after a theory of people with theories and I thought that was as beautiful as just a beautiful sort of consensus yeah so it's it's it's a conception of of of human nature that gives them the same sort of proclivities that you know we as sort of
00:43:52scientists have about them it's a rather than sort of observing human beings as automaton you know on some kind of chess board or or whatever that we can manipulate move in certain ways rather we give some dignity to those actors recognize that there are you know acting under
00:44:09on in on certain conditions but these people also have have theories the guy and models to guide their activities %HESITATION that then lead to hopefully great things like iPhones and and and and and and %HESITATION yeah you know our cars and you know and so forth and and
00:44:26I think that that conception is missing and it is a little bit of an economics and you get it you just plan rose had a little bit of that intuition a recently had visitors with %HESITATION Eric van and stay in who's an economist at Harvard and and and
00:44:37he's talked about sort of belief and manager of vision and I kinda like that notion as well and and with the card Acosta Todd's anger we try to sort of flesh that out into %HESITATION into a theory of thinking about you know the role of economic actors sort
00:44:52of having the theories about how to create value rather than starting with the promise that they're sort of blinded and so forth and and and mistake ridden which they are but but but but can we also sort of %HESITATION develop I guess %HESITATION a model that gives them
00:45:07the same capacities that we have as well some yeah I this has obviously would you mentioned earlier that the relevance for in behavioral economics of one criticism that someone made a behavioral economics is just criticism it doesn't I just as well economics you know the reductio ad absurdum
00:45:30of of the whole economic this is rational is all knowing %HESITATION Klay informed %HESITATION perfectly rational calculating machine of maximize utility is quote inaccurate which course it is known no thoughtful person would would discreetly tap what the behavioral economics and psychology literature done to some extent is just
00:45:52accumulate %HESITATION shortcomings that model but as you point out you know it doesn't tell us how people actually behave it doesn't so far at least as far as I understand maybe I'm being unfair to it I don't know %HESITATION but you're suggesting that that we should get into
00:46:09the Smith's style animus missile and try to figure out what theories people are using to understand the world imperfectly of course because they affect can't there's no such thing as a perfect understand and it's one of the lessons of what your written and to think more deeply about
00:46:30that or maybe some possible internet what is on some yeah that's the problem is there any sort of beliefs particular if it's radical beliefs about something they they can look like delusion looking out to other people and so did the example I like so actually before I got
00:46:45a piece to work in venture capital and and we're we're trying to invest and you know things that are the next big thing right and and in the next but you know people sort of pitching the next big thing tend to go sort of go in herds and
00:46:58and there was a lot of sort of similarity around what they were pitching rather than sort of truly novel beliefs about things but but but a window into this actually that the that I that I think is quite interesting one of the %HESITATION I don't remember the judge
00:47:13couples name right now one of the venture capitalists invested in sort of Instagram and and and and and on Twitter and many sort of very successful companies there's this interesting exchange where they had a chance to invest in %HESITATION Airbnb and %HESITATION do in this real time sort
00:47:29of exchange when they're talking about whether we should invest in this company %HESITATION they talked about the like well we're not sure that this sort of couch surfing thing is really going to blow up and become a big you know hotel chain or anything like that there's no
00:47:46way that you can compete with a sophisticated sort of hotel market and it sort of goes against intuition that we'd want to sort of have sort of you know people that we don't know stay in our homes like why would you want to rent out your home and
00:47:58why is when you go to New York why on earth if there's a sophisticated hotel market why would you stay in somebody's place rather than in a hotel and so so there's a situation where it's sort of counter intuitive and contradictory to sort of common sense almost right
00:48:12and and and and so you can actually find this email exchange the sort of capture some of this not exactly in those words but it highlights this this this issue which is the you know the beliefs that entrepreneurs my house on on the whole looking at funders deal
00:48:27funders in the public might say you know this is not like I wouldn't put my house up for anybody to use %HESITATION but they sort of stuck with and they said no we think this is a thing now and it turns out that now it is the biggest
00:48:38it has the most rooms in the world is bigger than Marriott than in any number of other chains and and they sort of had this what looked like a delusional belief that they sort of once they solve certain problems like you know %HESITATION no verification of people's identities
00:48:56and and and sort of using it eBay type sort of both recommendation and got a reputation system that that that made you feel comfortable renting somebody you've never met they they sold all those problems and then it became something right and I think you were sort of a
00:49:11similar thing as well I mean we're all told you shouldn't ride was state strangers and so forth but but but but they they solved a host of problems held on to the sort of theory and belief that this this could be something and so now when I travel
00:49:23some sort of a mess with my kids and and and getting your number of hotel rooms doesn't work and so we always just use Airbnb because it's a very simple solution %HESITATION but had I sort of been asked about that to invest in it at the time I
00:49:35produce said the same things as some of these venture capital which is now you know what counts surfing like those fine for hippies and whatever but this will be a this won't be a mainstream you know value creating activity that deserves venture venture investments and so so I
00:49:50I I I do think that they are getting into the theories and models that people have and and sort of thinking through who today need to convince you know what funding mechanisms public markets are always very good at sort of finding things that are counter intuitive and so
00:50:03maybe you have to find certain more patient investors are going to people who buy into the theory and the model that will then enable you to actually realize realize it in a in a way %HESITATION that others don't think it's possible central yeah I encourage listeners to check
00:50:19out the episode we did with the nice Nathan which our check of one of the co founders of Airbnb and also Sam Altman who %HESITATION describes how he was Sam described how %HESITATION they were accepted into other why commentator to get help and funding even though that was
00:50:39ridiculous idea but they talk a lot about the founders are really creative and that revolves around cereal boxes you can you can listen that as well as mark Andriessen I think talks about why he passed on Google up a misquote mistake or which one to call I would
00:50:56call it a mistake but a decision made that he wishes had been made otherwise obviously what's interesting to me is that you know a lot of those if you sell other start up seemed implausible it's certainly a BB is ridiculous say that lets strangers in my house and
00:51:11we stayed a stranger's house and obviously there's two kinds of rentals for BMB you get the whole house but what I'm sure taking a room in someone's house that would work is crazy up but it does and so in the early days of that kind of edge capital
00:51:28people just so skeptical of many of those ideas now I think they've gone away it's like poke about figured out like so the driverless car is thought to be inevitable and I have to concede I sort of think it is inevitable but it has a lot of challenges
00:51:44and it's not obvious no it if you had to bet on when it's going to be the dominant former transportation aside about amber happy about it eager to make I know idea I see all the selling points and I assumed foolishly that all the technical challenges have been
00:52:01solved all the regulatory barriers have been solved we're gonna put three to five built million people out of work in America driving taxis who risen and trucks eagerly to avoid killing people dying accents we assume that no one will die in an accident or maybe a handful people
00:52:18if they're driverless cars all the stronger he gets all somehow just inevitable and and we're certainly enormously large bats are being made that it will happen by more than one company which is crazy right yeah you would say something about your respects because he respects Richard your rules
00:52:37of thumb that people used to make decisions to get your life example of something that I think is often called a rational or foolish and %HESITATION I think it's an example of where the omniscience of the outsiders making a mistake yeah I mean there's there's sort of a
00:52:54debate between the biases of litter folks to talk some bias is so common for ski and and and others and then there's a there's a sort of strain of research in psychology by get your answer and and and many of his colleagues that focuses on here is six
00:53:07which say that you know these things that look like biases are are are are roughly %HESITATION rational suit so that so the all seeing eye article that you talked about actually lead to a debate where get your answer sort of response to some things and so forth I
00:53:21I have some challenges with that notion of heuristics because that the emphasis that they have is all sort of very general he respects and I'm I'm much more focused on sort of very specific hubris sticks almost as questions and so for me a simple here a stake and
00:53:36this comes Michael Pollan lie is is sort of the soup bills friendly way of thinking about it which is you know searching for an object is for me a humoristic and so when you have something in mind that you're looking for like you're looking for a solution to
00:53:50make computing personal computing easy and so if that's that's your sort of model then you're gonna quickly identify graphic user interface and mouse verses if your IBM and you're saying you know personal computing is never really going to be a thing it's gonna be these big mainframes and
00:54:04so forth you're not even looking at the world in the same way and so the futuristic is the sort of search for given sort of a certain model of the world that then guide your activity guide your activities and so that's why I like the notion of soup
00:54:17bills which you can sort of translate into a some kind of humoristic or seek search image we're trying to wrestle with the problem that then lets you quickly see something that others others aren't seeing and again if our emphasis is that that that the world tells us what's
00:54:32obvious then we'll never get to those things and and and so it's it's the it's the sort of difference and you know me coming to a painting and crying because it has some meaning to me or it answer some question or whatever versus somebody else or just walking
00:54:45behind saying like whatever you know what I all I see is a bunch of color or landscape exactly and and and so it's it's rather than sort of focusing on or thinking that the world is going to give us this relevant to meaning we need to impose that
00:55:03with the questions that we have and I think that goes for the arts just as it goes for sort of entrepreneurship or any any other activity because it is sort of guides are behaviors in powerful ways and leads us to like I said your novel interesting creative innovation
00:55:18and and so forth so you say though that so many of the most important innovations of the last fifty or two hundred years are people who didn't look for something they would solve that problem I mean so offered and gets purposes question semantics about which means I look
00:55:36for in which by something that would solve the problem but it strikes me that one of my favorite examples this is %HESITATION is the slide rules says fibrils this fantastically amazing human creation which many of our listeners about who I mention a recent episode that about that a
00:55:52lot of our listeners are twenty five to thirty four they're not more than half their the largest group of about thirty six percent in the survey that we did other more than this than say the thirty six to forty five but I don't we have a lot of
00:56:08homeless is all it means not not to to the domino but those young listeners %HESITATION and even the ones under forty four which are also fairly large group but they have never seen a slide rule they probably don't you probably don't know what they what one is it
00:56:24was a a computing device it was a way to make pretty quick accurate not permit the accurate but pretty accurate calculations of various kinds trigonometry %HESITATION large multiple digit dog math problems the Intel about what nineteen seventy or so had to be solved with either a book that
00:56:45you looked up in the back of with a bunch of tables and my dad had such will keep on a white hat it was the same kind of guy but he had that book I think it's because he was a psych %HESITATION grad student and done some statistics
00:56:58in his time so he had to use that book or you had to use a slide rule and every side role in their pocket or in there somewhere get a brief case and then the so what destroyed the biggest cyber company was quite full answer caning I think
00:57:13they were the largest and you think well how do you make a better slide will make it a more durable equipment will make the marks finer she can make the calculations right kills it is a pocket calculator course which not only is ends up being cheaper than more
00:57:28accurate insight robe ends up ultimately being much less expensive which is really mind blowing arm and that kid comes out of nowhere right it's it's it's the kind of innovation that disrupted disrupted industry because they just can't imagine you can imagine to know where to look for us
00:57:45I would think that's an important part of the story it's a different kind of looking at least it seems to me yeah %HESITATION yeah I I think that there's something intriguing about sort of the nexus of kind of these questions the organisms are people or entrepreneurs house and
00:58:00then serendipity I I think of the story of Archimedes and so Archimedes is given this challenge by was at the king or I can't remember %HESITATION to sort of asked about sort of how do I measure the volume of a rich he and the regular shape sense I
00:58:16think it was a crown or something like that he says yeah I know this is this is impossible and and so he goes home and he lowered himself into a bath tub and he notices that the bathtubs in Sir commensurate fashion sort of water raises and he says
00:58:31you know holy cow you recall he runs out onto the streets of the Syracuse naked and and that's and so it's it's sort of where it is that serendipity or is it sort of this question that's been posed to somebody who's smart who has a theory and then
00:58:44observes and says wait a second this is this is different because any all of us have lowered ourselves and bath tubs but we might sort of not sort of associate that with that question say right and and and so I think that there's an important sort of role
00:58:59in the questions that we pose and when those meets certain observations out there in the world then we come out with insights and so just to give sort of another example so Newton observed he's actually told the story to a friend that it was sort of captured he
00:59:13said he said you know he observed the apple falling in any number of people have observed things falling right but but but we don't have sort of a theory of gravitation immediately sort of pasta mind it it's it's with the right question and theory that things start to
00:59:26take on new meaning and relevance in the same way he didn't have big data so to sort of highlight how white light you know actually is sort of composed of you know the rainbow and he did serve rainbows just like any number of other people at a certain
00:59:40date rainbows but it was sort of with a question in the interpretation that the sort of observations then took on new meaning and so no big data would really tell you anything about the right so you can run you know big data and observations and in some ways
00:59:54we had all this had seen things falling or in the drought you know history things that fall under we'd seen rainbows but it's only once we have the right question and problem to solve that these things take on meaning and become quite powerful but absolutely there's some form
01:00:08of fuel serendipity in sort of the question meeting meeting this encounter with the graphic user interface with the apple or the rain or what have you then creates tremendous inside about you know what what what might be or might be possible so far someone to suggest close on
01:00:25as as I think there's something mysterious something now doesn't necessarily mystical but a bite and upping mystical the something mysterious about innovation and an insight and perception so you mention Archimedes that you said any number of people are themselves in a bath before well so what Archimedes asked
01:00:45why this time he could have answered that question in the heart of any quota because so I'm thinking about the crown could understood that most of us can understand how we come to the inside at that moment my sons %HESITATION my son's reading now Oliver sacks's book an
01:01:00anthropologist on Mars no she's been a minister's wife for a hat both reflects in a manner Mr first is white fur hat there to artistic think their sisters twins and sax bills a box of matches on the floor and %HESITATION there's they both say immediately the two of
01:01:19them together that %HESITATION there's a hundred seventeen matches on the floor and they both say thirty nine and thirty nine is a third of of %HESITATION one seventeen and the credible thing is they can't multiply thirty nine times three if you'd given that probably couldn't solve it but
01:01:38they can see site in some fashion we understand and so I think the Tennessee to map the human brain is a computer and to assume that all problems will be solved by computers because computational be better presumes that all problems computational and I think many problems are not
01:01:56computational now my favorite example this is Andrew of the rake up my argument is pretty good but enter wiles who solves famous last theorem and then it is on the front page of The New York Times first insight and then discovers there's a mistake in it and spends
01:02:13over I think are a little over a year trying to re proof of something that he assumes is true and then Monday to says he says he can't explain how we saw it's not like he can you know I worked on it in a different way sprained the
01:02:28just tried harder something just clicked and some part of the human experience is that clicking that we don't understand Mabel come to understand someday it's possible but I I don't know yeah I think just the comfort with sort of uncertainty and that type of serendipity in so far
01:02:46as I think is it important and and I guess you know what it was a lot of science we have all kinds of certainty and about what's obvious and so forth and and I think over time the people they're comfortable sort of sitting back and maybe questioning some
01:02:59of those foundations that might extend yield interesting insights that are you know just fundamentally different %HESITATION might might might again working with this co authors to our Kaufman who is himself an atheist but he wrote a book called reinventing the sacred and he said essentially what we've done
01:03:15with science as we sort of taking out the mystery in terms of being comfortable with sort of uncertainty and and merchants and other types of dynamics and I think that this issue of perception highlights that and I think we can get in get get a get a window
01:03:30into some of this by thinking about this belts that we have in terms of where we look for meaning and where we look for insight and and what types of problems we're trying to solve and and that's that's sort of part of the essay and and this this
01:03:42%HESITATION these pieces with the on and and and you all came to try to sort of develop those arguments so my guest today has been type of feeling temple thanks for being part of a come talk thanks so much this is econ talk part of the library economics
01:04:05and liberty for Mari Kontakt con talk dot org or you can also comment on today's podcast can find links in readings related to today's conversation sound engineer free Cantacuzino yet I'm your host Russ Roberts thanks for listening talk to you on Monday

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