Broken Dishes

Book Thinking Fast and SlowSome books are just so good, that I read them again and again. One such book is Daniel Kahneman’s Thinking, Fast and Slow. I have both hard-copy and e-book versions which I find myself going back to a few times a month.

Kahneman is a remarkable fellow — a psychologist by training, he won the Nobel prize in Economics in 2002 for integrating insights from psychological research into economic science, primarily human judgment and decision-making under uncertainty. His book is a treasure-trove of empirical examples of how we think; nicely organized in an easily understandable theoretical framework. I highly recommend it for those who thirst to understand why we are the way we are.

Last week, while working on a complex grant application here at Baycrest , I had an opportunity to apply one of the insights from Dr. Kahneman’s book. We were working on a section of the grant application where we were to outline the economic benefits of creating a centre dedicated to the commercialization of innovations in aging and brain health. We had come up with a list of 2 strong benefits and 6 additional benefits — a total of 8 points. The 6 additional benefits were good and added somewhat to the overall business case but they lacked the clarity and resonance of the first two benefits. The small team gathered around my office meeting table were working on the text that supported our list of 8 benefits when I recalled an experiment described in Khaneman’s book and decided to change our approach. Here is the experiment that came to mind (the text in green below is copied directly from the book):

Christorpher Hsee, of the University of Chicago, asked people to price sets of dinnerware offered in a clearance sale in a local store, where dinnerware regularly runs between $30 and $60. There were three groups in his experiment. The display below was shown to one group; Hsee labels that joint evaluation, because it allows a comparison of the two sets. The other two groups were shown only one of the two sets; this is single evaluation. Joint evaluation is a within-subject experiment, and single evaluation is between-subjects.

 

 

Set A: 40 Pieces

Set B: 24 Pieces

Dinner Plates 8, all in good condition 8, all in good condition
Soup/Salad bowls 8, all in good condition 8, all in good condition
Dessert plates 8, all in good condition 8, all in good condition
Cups 8, 2 of them broken  
Saucers 8, 7 of them broken  

 

Assuming that the dishes in the two sets are of equal quality, which is worth more? This question is easy. You can see that Set A contain all the dishes of Set B, and seven additional intact dishes, and it must be valued more. Indeed, the participants in Hsee’s joint evaluation experiment were willing to pay a little more for Set A than for Set B: $32 versus $30.

The results reversed in single evaluation, where Set B was priced much higher than Set A: $33 versus $23. We know why this happened. Sets (including dinnerware sets!) are represented by norms and prototypes. You can sense immediately that the average value of the dishes is much lower for Set A than for Set B, because no one wants to pay for broken dishes. If the average dominates the evaluation, it is not surprising that Set B is valued more. Hsee called the resulting pattern less is more. By removing 16 items from Set A (7 of them intact), its value is improved.

This is a fascinating and illuminating piece of work that provides an important lesson about parsimony.

Reflecting on this experiment, I reasoned that the grant reviewers would be engaging in single evaluation of the applications they receive. This is largely because most of the 40 or so grant applications they will receive would come from different sectors of the economy (healthcare, energy, finance, manufacturing, etc.).  It would be difficult for them to make a direct comparison between the economic benefits listed in one application to the benefits listed in the others. Benefits to the economy are not as easy to compare as are dishes. Moreover, the evaluation team will likely not each review the 40 or so applications. It is more likely that a small number of applications will be distributed to each reviewers. Thus, the reviewers will be making a somewhat independent judgement of the economic benefit list as it appears in each individual application.

My epiphany was to eliminate the 6 additional benefits in our list and instead to focus entirely on the first two. In this way, the ‘average’ value of the economic benefit argument we were making would not be diluted by lesser (albeit positive) points.  The team around my office table agreed to this approach and we spent our time fleshing out the two strong points. The result was a highly focused discussion of just the two strong points we had come up with.

The grant application went in on Friday and I think we stand a good chance to be selected for the short-list. Should we get selected, it will be amusing that we used research on how the brain works to win a grant competition for a center focusing on research about the brain.