Decision Quality Blog

One of the things that many of us grew up believing is that we had a good strong independent streak born of our upbringing, our superior intellect, and our high levels of education. Or something like that.

Our parents certainly got after us about it. I distinctly recall hearing something like, “So if Johnny decided to jump of the bridge . . ;”

Based on our presumed superior discipline and thought processes, we rate ourselves highly on our research ability (see my post on this), our ability to find good information, and our ability to tell what’s credible and useful from what is not. It may be that we should re-think those assumptions. Here’s a teaser from a piece in the New York Times as to why . . . [read]

Conventional marketing wisdom holds that predicting success in cultural markets is mostly a matter of anticipating the preferences of the millions of individual people who participate in them. From this common-sense observation, it follows that if the experts could only figure out what it was about, say, the music, songwriting and packaging of Norah Jones that appealed to so many fans, they ought to be able to replicate it at will. And indeed that’s pretty much what they try to do. That they fail so frequently implies either that they aren’t studying their own successes carefully enough or that they are not paying sufficiently close attention to the changing preferences of their audience.

The common-sense view, however, makes a big assumption: that when people make decisions about what they like, they do so independently of one another [emphasis added]. But people almost never make decisions independently — in part because the world abounds with so many choices that we have little hope of ever finding what we want on our own; in part because we are never really sure what we want anyway; and in part because what we often want is not so much to experience the “best” of everything as it is to experience the same things as other people and thereby also experience the benefits of sharing.

What’s that? We don’t make decisions independently? Nope. It turns out there’s a phenomena at work in many decision situations called “cumulative advantage” which is a fancy way of saying . . .

• The rich get richer
• The popular get more popular

Here’s more . . .

The reason is that when people tend to like what other people like, differences in popularity are subject to what is called “cumulative advantage,” or the “rich get richer” effect. This means that if one object happens to be slightly more popular than another at just the right point, it will tend to become more popular still.

How does this show up in practice? Take a simple example. You listen to ten songs. Which do you pick? The answer is the ones you’ like best of course. Well, errr, maybe. What happens if you see next to each song you see a number that indicates how many other people liked that song. Now which do you pick? Ten points if you say the ones that everyone else liked best. In fact, the author of the article ran just such a test and says this about that . . .

. . . social influence played as large a role in determining the market share of successful songs as differences in quality. It’s a simple result to state, but it has a surprisingly deep consequence. Because the long-run success of a song depends so sensitively on the decisions of a few early-arriving individuals, whose choices are subsequently amplified and eventually locked in by the cumulative-advantage process, and because the particular individuals who play this important role are chosen randomly and may
make different decisions from one moment to the next, the resulting unpredictability is inherent to the nature of the market. It cannot be eliminated either by accumulating more information “about people or songs” or by developing fancier prediction algorithms, any more than you can repeatedly roll sixes no matter how carefully you try to throw the die.

Believe it or don’t . . . it’s up to you. The thing you should not lose sight of is that we have a strong need to order our universe. To make what goes on around us make sense. So we attribute certain effects to certain causes, when more often than not, they two are only vaguely linked. We also attribute to ourselves much more independence of thought and action than is in fact the case. We tell ourselves stories about our capabilities to master our universe based more on our desires than on any demonstrable facts.

None of this makes us bad, by the way. It’s how we cope and how we get by. The learning here is that if you’re in the hits predicting business . . . and that would include records, books, stocks, or American Idol contestants, you might want to factor in the idea that the market can run away or not based on factors you simply cannot predict. If you’re interested in making better decisions, you should be equally mindful of the effect of something people refer to as the “wisdom of crowds”. Just because a lot of
people choose something doesn’t mean anything . . . other than a lot of people chose it.

kah

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