Judgment Misguided: Intuition and Error in Public Decision Making

by Jonathan Baron

People often follow intuitive principles of decision making, ranging from group loyalty to the belief that nature is benign. But instead of using these principles as rules of thumb, we often treat them as absolutes and ignore the consequences of following them blindly.
In Judgment Misguided , Jonathan Baron explores our well-meant and deeply felt personal intuitions about what is right and wrong, and how they affect the public domain. Baron argues that when these intuitions are valued in their own right, rather than as a means to another end, they often prevent us from achieving the results we want. Focusing on cases where our intuitive principles take over public decision making, the book examines some of our most common intuitions and the ways they can be misused. According to Baron, we can avoid these problems by paying more attention to the effects of our decisions. Written in a accessible style, the book is filled with compelling case studies, such as abortion, nuclear power, immigration, and the decline of the Atlantic fishery, among others, which illustrate a range of intuitions and how they impede the public's best interests. Judgment Misguided will be important reading for those involved in public decision making, and researchers and students
in psychology and the social sciences, as well as everyone looking for insight into the decisions that affect us all.

240 pages, Hardcover

First published January 1, 1998

About the author

Jonathan Baron is professor of psychology at the University of Pennsylvania. He studies intuitions and judgment biases that impede maximization of utility (good) by democratic government. These include parochialism, the act-omission distinction, moralistic values, and the isolation effect. Relevant rubrics are Behavioral Public Finance, Behavioral Public Economics, and Behavioral Law and Economics. He is also interested in experimentation and data analysis.

Reviews

[Henry · Rating 5 out of 5]

In essence, the author raises 2 different types of thinking methods. The first type is what the author describes as “intuitive thinking”, a thinking guided by the idea of morality, uniformity and consistency. The second type of thinking is what the author describes as "goal oriented thinking”.

While I did not come across this book through my usual channel of recommendation of a financial-market related person, the author’s idea is in fact a fundamental principle of what value investing believes in. The two types of thinking are in essence, other names of what Howard Marks describes as “first-level thinking” and “second-level thinking” (for more of that, one should read Marks’ legendary book, The Most Important Thing).

To give a simple example of those simple methods, assuming the following scenario: You know a heavy rain is coming. And you have everything you need - the manufacturing capacity, the know-how of marketing and distribution - to build an umbrella factory. What should you do?

First-level thinker would jump right into building an umbrella factory. Afterall, it makes perfect sense: there’s obviously a heavy demand, so supplying the demand seems like a no-brainer.

Second-level thinking tinkers much more than the first-level thinkers. The second-level thinker acknowledges that the demand would be there, but furthermore acknowledges that other people (the market) also know that the demand would be there. Therefore, since the information is priced into the market, there will likely be more umbrella factories come into supply. While demand would increase, the supply would increase even more. In this scenario, perhaps building an umbrella factory would not be a wise decision.

Of course, the above hypothetical scenario happens all the time throughout history. Many of the modern inventions encourage waves of speculation, with loads of first-level thinkers thinking their investments are sure bets, only to lose their money later on. On top of my head I can think of multiple bubbles that occurred from first-level thinkers: Tulips, South Sea, Railroad - or to more modern times, Automobile, Aeroplane, “Anything-tronics”, Fiber Optics, Dot-Com, (several episodes of) Real Estates build up and as of writing: Artificial Intelligence, Crypto currencies, Electric Vehicles… The list goes on and on.

The author dwells on the dissecting of first-level thinkers. Understanding how those “morality” based thinking methods work. While on one hand, I do find the explanation interesting. But as someone who has been rewired to think (or attempt to think) on second-level thinking, I find that it simply tells me the limitation of first-level thinkers, and double down on second-level thinking.