The Dirty Truth

Question: Why do we keep making the same mistake over and over?

Answer: Because we fail to identify the root cause of the mistake to begin with -- a tendency researchers call, "misattribution."

Example: Washing your clothes. Say you get a stain on your shirt. You throw the shirt in the washing machine, add some detergent and 45 minutes later -- Voila! – the stain is still there.

You cuss. You holler. You kick the washing machine. Maybe you blame the detergent. But do you blame yourself? Nooooo. But maybe should.

According to a recent study in The Wall Street Journal, most Americans -- 53% -- don’t use the recommended amount of detergent per wash load. Instead they guess, usually filling the cap up to the top. This is a big mistake.

Why? Because detergent "overpouring" creates a high, foamy tide inside the machine, lifting soil and lint above the water level so it isn't rinsed away. That leaves residue on clothing that fades colors and attracts more dirt.

It’s also bad for your washing machine. Inside the machine, detergent buildup encourages odor and bacteria growth, and leads in time to wear and tear that will require professional attention.

So why do we do this? Because we don’t read the instructions. And why don’t we read the instructions? Because we think we know better. Most of us, the article reports, have done so many loads of laundry in our lives that we consider ourselves to be laundry experts. And experts don’t need no stinking instructions.

So there you have it: Ignorance and overconfidence all wrapped into one.

Class dismissed.

Upwardly Mobile

As readers of Why We Make Mistakes know, multi-tasking is usually a bad idea. It's an especially bad idea when you are behind the wheel of a car. Talking on a cell phone or texting while you are driving dramatically increases your chances of an accident. But we do it anyway because, among other reasons, we are overconfident about our abilities to multi-task.

For some interesting history about how we got to this point, see the page-one story by Matt Richtel in today's New York Times. As the article notes:

"Long before cellphones became common, industry pioneers were aware of the risks of multitasking behind the wheel. Their hunches have been validated by many scientific studies showing the dangers of talking while driving and, more recently, of texting.

"Despite the mounting evidence, the industry built itself into a $150 billion business in the United States largely by winning over a crucial customer: the driver."

Information Overload

More than 35 years ago, in a now-classic piece of research, Paul Slovic reported on the ability of handicappers to predict the outcome of horse races. At first, Slovic let the handicappers use any five pieces of information they wanted -- the jockey’s weight, for instance, or the horse’s previous race performance. Then he let them use 10 pieces of information. Then 20, and, finally, 40.

Slovic was studying the stress caused by information overload. What he found was fascinating: with more information, the accuracy of the predictions did not improve -- it was no better with 40 pieces of information than it was with 5.

But the confidence in those predictions did improve. This increased substantially, from less than 20% with 5 pieces of information to more than 30% with 40 pieces of information.

I thought about Slovic's findings as I read about the Galleon Group, the hedge fund whose rotund leader, Raj Rajaratnam, was arrested earlier this week on insider trading charges.

The pressure at Galleon was intense. According to published reports, analysts there were browbeaten to come up with new information on companies whose stock the fund was interested in.

But that information, at least in some cases, didn't seem to help -- and may even have hurt. As Alex Berenson reported in today's New York Times, Mr. Rajaratnam "lost millions of dollars from what prosecutors characterize as insider trading."

In one case alone, involving the chip maker Advanced Micro Devices, Galleon reportedly lost $30 million.

What is interesting here is not that some of Galleon's trades went bad; one would expect that. What is interesting is that Galleon apparently didn't learn what Slovic did: More information doesn't necessarily lead to better decisions. But it can lead to costly ones.

Buy High, Sell Low

If you want a good example of how overconfidence leads to mistakes (and very expensive ones at that), check out Floyd Norris's column in today's New York Times. Usually, we see overconfidence at work in individual errors; here, we see it at work on the corporate level.

Norris's column focuses on the allure created when publicly traded companies buy back their own stock (parenthetical comments below are my own):

"One reason investors have viewed buybacks as a positive was that they indicated corporate management and boards were confident (there's that word!) that their share prices were low and that the company would not need the cash for a possible downturn in business.

"Unfortunately," Norris concludes, "there is little evidence that is the case."

Records show that companies typically buy their own stock at the top of the market -- a colossal waste of money. He cites the case of American International Group. In 2007 it spent $6 billion buying back its own stock. In the first quarter of 2008, it spent another $1 billion. And then? Ka-boom. The bottom fell out of the market. Today, AIG would be broke without a massive federal bailout.

And AIG is no exception. Home Depot did the same thing. In the third quarter of 2007, Norris reports, it bought $10 billion of its own stock at an average price of $37 a share. By early this year, the price had fallen to $18. You talk about do-it-yourself investing!

Yessir, Home Depot: You can do it. We can help. Next time, just hang onto the cash.

What McNamara Learned

Anyone interested in the study of human error can benefit from reading the powerfully written obituary of Robert McNamara that appears in today’s New York Times.

McNamara was a former secretary of defense and the primary architect of the Vietnam War. President Kennedy once called him the smartest man he ever met. Yet McNamara came to consider the Vietnam War as a colossal mistake – confessing in a 1995 memoir that it was “wrong, terribly wrong.”

It’s instructive to compare McNamara’s view of the Vietnam War with George Bush’s view of the war in Iraq.

The roots of both wars share a striking similarity: an overconfidence in the precision of intelligence. In the case of Vietnam, Congress authorized war after President Johnson contended that American warships had been attacked by North Vietnamese patrol boats in the Gulf of Tonkin in 1964. But, as a 2005 report by National Security Agency showed, the attacked never happened. Instead, American ships had been firing at radar shadows on a dark night. At the time, however, the agency’s experts in signals intelligence told McNamara that the evidence of the attack was iron-clad.

That phrase bears an eerie similarity to a more recent expression of war-time certainty. Remember when George Bush asked then-CIA director George Tenet how confident he was that Saddam Hussein possessed weapons of mass destruction?

“Don’t worry,” Tenet reportedly replied. “It’s a slam-dunk.”

Slam-dunk. Iron-clad. In both case men were certain, and in both cases men were wrong. What’s informative is how McNamara and Bush responded to being wrong. McNamara spent the rest of his life analyzing (and agonizing over) where and why he erred. Bush hasn’t.

McNamara’s conclusions were distilled in Errol Morris’s 2003 documentary, “The Fog of War: Eleven Lessons from the Life of Robert S. McNamara.” The greatest of those lessons, McNamara said, was to know one’s enemy. “We must try to put ourselves inside their skin and look at us through their eyes,” he said.

When McNamara did that, he explained in an oral history, he concluded that we failed to grasp the nature of the threat of communism. “What went wrong was a basic misunderstanding or misevaluation of the threat to our security represented by the North Vietnamese,” he said. “I am certain we exaggerated the threat.”

That line caught my eye because just last week, the Times ran a story saying, essentially, that we had repeated that error in Iraq. In a series of interrogations before his execution, Saddam Hussein told an F.B.I. agent that on the eve of the 2003 American invasion, Iraq was trapped between United Nations orders to demonstrate that it had disarmed and a fear that appearing too weak would invite attack from its powerful neighbor and foe, Iran.

In fact, Saddam so feared Iran that he told the F.B.I. that if United Nations sanctions against his country had been lifted, Iraq would have sought a security agreement with the United States to protect it from Iran. (Italics mine.)

“We did not appreciate how large the threat of Iran loomed in his thinking,” said Charles A. Duelfer, a veteran intelligence official who led the hunt for unconventional weapons in Iraq in 2004. He called the United States’ understanding of Iraq in 2003 “cartoonish.”

The interviews, noted the article, “underscore once again both Mr. Hussein’s striking miscalculation of the risks he faced and the United States’ mistaken estimate of the threat Iraq really posed.”

In his oral history at Berkeley, McNamara predicted as much. “We didn’t understand the Chinese; we didn’t understand the Vietnamese, particularly the North Vietnamese. So the first lesson is to know you opponents.

“I want to suggest to you that we don’t know our potential opponents today.”

One man learned from history; the other has not.

The Heart of the Matter

A new study from Britain shows that more than half of the people surveyed could not accurately locate on a diagram the position of the human heart.

The study, published in the journal BMC Family Practice, showed there has been little improvement in anatomical knowledge since a similar study was performed in the 1970s.

This should come as no surprise, at least to readers of this blog. Overconfidence is a prime (though often well-camouflaged) culprit behind many of our mistakes. We often overestimate the precision of what we (and others) know. And this overestimation can lead to problems, especially when it comes to our health. One study conducted in the U.S. in 2007, for instance, found that doctors overestimate patient literacy, and that the lack of patient knowledge leads to poorer care.