Posts Tagged ‘loss aversion’

Messing with the Enemy

December 13, 2019

Messing with the Enemy is an excellent book by Clint Watts. He is a Robert A. Fox Fellow in the Foreign Research Institute’s Program on the Middle East as well as a senior fellow at the Center for Cyber and Homeland Security at the George Washington University. He is graduate of the U.S Military Academy and in addition to his work as an Army officer, he also served in the F.B.I. He founded the Combating Terrorism Center at the Military academy.

He used the internet to study, or as he writes, mess with extremists half a world away. He observed their debates, gauged their commitment to terrorist principles, and poked them with queries from a laptop at home. He was also able to pose as a fellow terrorist.

The internet provided assistance to al-Qaeda operatives when Osama bin Laden was forced out of Tora Bora, Afghanistan. Hunted by the entire international community, his aides and deputies were constantly on the run. The internet allowed for communication between and control of these aides and deputies. Throughout the mid-to late nineties, websites and email chains provided a communications leap forward to terrorists (and the rest of the world), but they had a major limitation: they were one-way modes of information sharing. Bin Laden could only broadcast to audiences. They could not easily follow up with those inclined to join the ranks. All that changed with the dawn of the new millennium. With the emergence of vBulletin, commercially available software allowing group discussions and Yahoo groups, audiences now had a direct window to communicate with Islamist webmasters, clerics, and leaders. In 2001, the Global Islamic Media Front started a Yahoo Group and a related website. They required users to acquire a password to access the discussion page. Many others featuring general Islamist discussions with a sprinkling of jihadi messaging popped up and down toward the end of the decade. Watts writes that none endured for long before rumors of intelligence operatives penetrating them squelched their dialogue and counterterrorism arrests of forum administrators led to their closure. Two-way communication between al-Qaeda leaders and hopeful jihadis increased, but more content needed to follow to sustain audience engagement.

al-Qaeda created an official media group, al-Sahab, to fill the void and gain greater control of jihadi discussions. Bin Laden recognized the value of jihadi websites and began sending audio and written statements from top al-Qaeda leaders directly to al-Qaeda in the Arabian Peninsula’s leader, Yusuf al-Uyayri, and his site Al Neda. Websites and forums served as principal communication points for those around the world inspired by the incredible success of the 9/11 attacks and seeking to join bin Laden’s ranks.

Replication of sites and duplication of content became key features of online survival for al-Qaeda supporters. Openly available software and hosting services meant websites and forums could be created by anyone in minutes, and accessed by anyone around the world with an Internet connection. This lowered technical boundary for mainstream internet users meant relatively novice jihadis now had the power to create their own safe havens online.

In his book The Wisdom of Crowds, James Surowiecki describes how the internet provided a vehicle for crowds to make smarter decisions than even the smartest person in the crowd, working alone, could make. On-line Watts made the prediction on January 2, 2011 that Osama bin Laden would be killed that year. He made this prediction to work as a vehicle for crowdsourcing an important question. What would al-Qaeda and the world of terrorism be if bin Laden were no more? He used this New Year’s prediction to provoke the audience to answer this question. Watts was disappointed to find that rather than yielding great wisdom of important insight from experts, the results instead returned a pattern of answers of no consequence, “Nothing will change,” and “It doesn’t matter” became patent answers from the best thinkers in the field, regardless of the question.

So Watts took recourse in research that has been reported in previous healthymemory posts on Philip Tetlock. In his 2005 book, Expert Political Judgment he reported the survey of hundreds of experts in political thought over two decades. He determined that, en masse, experts were no more successful at predicting future events than a simple coin toss. He identified two kinds of forecasters. He borrowed from a Greek saying, “The fox knows many things, but the hedgehog knows but one big thing.” He classified those good predictors as “foxes” and poorer performers as “hedgehogs.” What differentiated the two groups’ success was how they thought, not what they thought. Tetlock’s foxes were self-critical, used no template, and acknowledged their misses. By contrast, hedgehogs sought to reduce every problem to a single theory, were not comfortable with complexity, we’re overconfident in their assessments, and placed their faith in one big idea, pushing aside alternative explanations. He saw a lot of hedgehogs in his online surveys,and occasional foxes to get insights. He developed a techniques to identify, in advance, foxes.

At this point, there will be a break in this narrative to mention that Tetlock has conducted additional research into intelligence analysis using a very large sample of analysts. There he was able to identify analysts who performed better than chance, and these analysts were, of course, foxes. These posts can be found by entering “Tetlock” into the search box at

Returning to the current post on Alan Watts, he used the research of Daniel Kahneman and Amos Tversky (two authors oft cited in this blog) Their research identified a series of heuristics and noted the circumstances where biases emerged to make incorrect judgments. Long ago they identified the predictive missteps Watts had observed in his polls. Status quo bias, a belief that tomorrow will most likely look like today, ruled the responses. Loss aversion, a tendency to avoid anticipated losses rather than pursue equally likely gains, filled the results of counterterrorism policy questions. Herding, the tendency of large groups of people to behave the same way and pursue groupthink, drove Watt’s social media recruits to the same set of answers.

Watts changed his approach using Tetlock’s insigts and Kahneman and Tversky’s heuristics and biases. Instead of asking simple yes-no questions, he flooded respondents with as many potential outcomes as he could think of, making it challenging for non experts to wade though the responses. He identified novices and less innovative thinkers by playing to the status quo bias. Every question had a “no change” response option, surrounded by responses imitating common thinking stripped from Google searches, newspaper headlines, and cable news pundits. With every question he offered survey takers a comment box or allowed them to craft an “other”response.

The prediction he made was confirmed when on May 2, 2012, U.S. Navy SEALS killed Osama in Laden in Abbottabad, Pakistan. The result was that his Twitter feed of only a couple hundred followers suddenly became more active than usual. For a brief Google search period, news of bin Laden’s death brought a world of visitors to his New Year’s prediction. His small blog suddenly had an audience, and he had a new opportunity for rater perspectives from a larger crowd.

Trump and Behavioral Economics

June 2, 2016

On the June 6 & 13, 2016 “New Yorker” Financial Page there is an article by James Surowiecki.  He is the regular “New Yorker” correspondent for economics, business, and finance.  He has also written a book that Healthymemory would highly recommend, “The Wisdom of Crowds.”  His article is titled “Losers” and it is about how behavioral economics explains the attitude of Trump supporters.  The field of behavioral economics was founded by Daniel Kahneman and Amos Tversky. There have been many, many healthy memory blog posts on this topic and about these authors.   Prospect Theory is key to behavioral economics and resulted in a Nobel Prize being awarded to Kahneman.  Unfortunately Tversky had already passed away when the award was made.

Surowiecki notes that Trump plays to one of the most powerful emotions in economic life, which is what behavioral economics call loss aversion.  The basic idea is that people feel the pain of loses much more than they feel the pleasure of gains.  Empirical studies estimate that, in general, losing is twice as painful as winning is enjoyable. Consequently, people will go to great lengths to avoid losses, and to recover what they’ve lost.

Suroweicki notes that Trump’s emphasis on losing is unusual  even in bleak times.  But he believes that it has worked for him, because it resonates with what many Republican voters already feel.  A study by the Pew Research Center last fall found that 79% of those who lean Republican believe that their side is losing politically.  A RAND survey in January found that voters who believed that “people like me don’t have any say about what the government does” were 86.5% more likely to prefer Trump.  Trump supporters feel that they, and the country, are losing economically, too.  In the RAND survey, Trump did better  with the people who were the most dissatisfied with their economic situation, and exit polls from the Republican primaries show that almost 70% of those who voted for Trump were “very worried” about the state of the economy as compared to only forty-five % of all voters in Democratic primaries.

Surowiki notes some surprising things about all this.  The first is that, in objective terms, plenty of Trump supporters haven’t lost that much.  We’re familiar with Trump’s appeal among white working class voters, many of whom truly have seen wages stagnate and jobs dry up.  But Nate Silver has recently pointed out that the median Trump voter is actually better educated and richer than the average American.  But an important point of Kahneman and Tversky’s work is that people don’t look at their status objectively, they measure it relative to a reference point, and for many Republicans that reference point is a past time when they had more status and more economic security.  Kahneman argues that even people who simply aren’t doing as well as they expected to be doing feel a loss.  And people don’t adapt their expectations to new circumstances.  A study of loss aversion by Jack Levy concluded that, after losses, an individual will “continue” to use the status quo ex ante as her reference point.”  Suroweicki notes that Trump’s promise is precisely that he’s going to return America to the status quo ex ante.  He tells his supporters that he will will help recoup their losses and safeguard what they have.

Suroweicki goes on to say that the other surprising thing is that you might expect loss-averse voters to be leery of taking a risk on an unpredictable outsider like Trump, since loss aversion often makes people cautious:  offered the choice between five hundred dollars and a 50 % chance at a thousand dollars or nothing, most people take the sure thing.  However, loss aversion promotes caution only when people are considering gains; once people have sustained losses, impulses change dramatically.  Offered the choice between losing five hundred dollars and a 50% chance of losing a thousand dollars or nothing, most people prefer to gamble—opposite of what they did when presented with the chance to win a thousand dollars.  People are willing to run huge risks to avert or recover loses.  In the real world , this is why people hold falling stocks, hoping for a rebound rather than cutting their losses, and it’s why they double down after losing a bet.  For Trump’s voters, the Obama years have felt like a disaster.  Taking a flyer on Trump actually starts to feel sensible.

Suroweicki continues, noting that historical parallels are always tendentious, that loss aversion has been instrumental in the success of authoritarian movements around the world.   The political scientist Kurt Weyland has argued that it played a crucial role in the rise of such regimes in Latin American, where the fear of Communism drove putatively democratic societies toward the radical solution of strongman rule.  Suroweicki notes that Trump may not quite be an American Peron, but, to his his supporters, his unpredictability is a selling point rather than a flaw.

It is important to remember that the basis thesis of behavioral economics, a thesis that has ben consistently supported, is that humans do not behave or think rationally.  Rather they are driven by emotions.

Healthy memory feels compelled to note other facets of human cognition that contribute to flawed political decisions.  One is the success of the big lie and the continued persistence of these lies.  It is extremely difficult to correct these lies.

Another problem is  the fallibility of memory and how selective memory makes it difficult to correct erroneous beliefs.  Consider the Iraq war that the younger Bush took us into.  The weapons of mass destruction, on which the invasion was predicated, were never found.  France and Germany were urging Bush to delay an invasion until the inspection were completed and the existence of these weapons could have been ascertained.

It was also the case that the King of Jordan and Henry Kissinger warned Bush that an invasion would result in a broken country that would serve as a base for radical Islamist groups..  This is exactly what has happened.  So the costs of this war not just monetary, which added to the national debt, but more importantly human, produced a situation that is worse, not better, than what prevailed, before the beginning of the war.

People also seem to have forgotten the financial crisis left by the Bush administration that resulted in the very real possibility of a depression.  In spite of recalcitrant Republicans, Obama managed to prevent the depression and aid in an important economic recovery.  By most objective standards, the U.S. economy is in good shape, and the American economy is one of the best performing economies.

Healtymemory still wonders about Trump.  It is difficult for him to imagine Trump curling up with a copy of Kahneman’s “Thinking Fast and Slow.”  It is also difficult imagining Trump taking consul with an expert informing him how to exploit human information processing shortcomings for political gain.  Using the word “instinct” is inappropriate here, but Trump has a flair for exploiting human information processing shortcomings so that System 2 processing is avoided and System 1 prevails resulting in emotions rather than reasoning governing their voting.

© Douglas Griffith and, 2016. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Douglas Griffith and with appropriate and specific direction to the original content.