Gustavo Ballvé on June 19th, 2012
Food for thought, Home, Mental models, Portfolio Management, Risk management, Science

I love getting reader suggestions, this one via LinkedIn and a first from this reader. Given the quality of the article, I hope for many more. His recommendation is an 2009 article by Jonah Lehrer at the New Yorker magazine about “that famous marshmallow study” – full description inside.

The study and its path to, perhaps, a better knowledge of self-control, are interesting enough and make for a great read. That said, what I love about “science-ish” articles and always highlight here are the quality of the questions being asked, the soundness and relevance of the experimental methods, the same about the assumptions, or how the researchers deal with data that sometimes confront the original premises – and if and how they change their minds and develop true knowledge. I’ve written this quote here before, but I never get tired of repeating it: “The most interesting phrase in Science is not ‘Eureka’, it’s ‘Hmm, that’s strange…’ “ – And if that is not very much linked to investment research, then I’m in the wrong field.

So please read on! You have two choices: you can read the article immediately if you click in the “Read more” link to the right, or you can wait until I come back and get… Ah, never mind.

This study is so famous that I even saw some of the experiment’s video footage at the HBS PLD course I took recently. It’s basically like this: kids, one at a time, are given a choice between a marshmallow now or two if they wait some undisclosed amount of time, then are left alone with the single marshmallow within eyesight and reach. Of course they’re being filmed and that generated some of the most poignant and fun scientific videos ever (you can get a sense of it via the replicated experiment in the video below). Anyway, unsurprisingly, most kids can’t wait and eat the marshmallow quickly no matter how hard they try to avoid temptation, but a not-so-small bunch do wait for 15 minutes (the experiment’s standardized wait period, after which the adult comes back with another marshmallow).

Two things are very important in the article and, in a faster and shallower version, in the video above: One, the “patient” kids crave the treat just as much as the others, but they trick themselves into waiting by distracting themselves – and, the study also shows, this might be a teachable trait. Two, when the same kids were observed at varying ages now into their 40’s – yes, the same kids – the “high delay” kids are more successful, have had better SAT scores by far, are leaner, have had fewer drug problems (if any) and so on and so forth.

In terms of the quality of the questions, methods, assumptions and intellectual honesty in this study (or these studies more accurately), the researchers initially had to deal with the immense weight of “tradition” in their research field (Psychology), both in the body of work and beliefs until then and in the experimental methods, and then had to deal with their own shortcomings and initial assumptions being proven wrong and so on. The fact that this group of people seem to be advancing or helping advance this particular subset of knowledge for so long is quite an achievement. It’s easy to fall into traps such as overconfidence, hubris, lack of motivation and so on. That also relates to investment, or at least to people who have experienced tremendous success in our field.

Finally, the reader sent me this article last Friday, and that same day I got an email from the New Yorker with Jonah Lehrer’s new article, called “Why Smart People Are Stupid“. It was very interesting reading this one – about how smart people actually have more problems with psychological biases and traps than the rest of the world. The reason is that they rely on shortcuts/ models that have worked before just as much as everyone else, but then “justify” their mistakes via elaborate introspection and post-fact “analysis” – of what was largely subconscious behavior. So in a way smart people detect biases in others more easily, but have a hard time remembering (or believing) they’re just as subject to them.

While the “self-control” issue of the 2009 article and marshmallow tests appears to be somewhat improvable, with large positive impact in our lives, another huge area of potential problems (biases etc.) seems to elude even the smartest, most self-aware minds. As Daniel Kahneman himself puts it, after decades of brilliant work in this field: “My intuitive thinking is just as prone to overconfidence, extreme predictions, and the planning fallacy as it was before I made a study of these issues.”

Well, one can hope.

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