Friday, June 11, 2010

Masters of disaster, or, our brains' unfortunate wiring

Many thanks to Bruce Schneier for pointing us to this article by Jason Fagone in the Wharton magazine: Howard Kunreuther and Robert Meyer have staked their careers on the belief that human beings are at heart irrational, doomed to repeat the same mistakes over and over—unless we find a way to overcome our wiring. But even they have been surprised by the results of Quake.

Quake is a computer simulation that Meyer, the Gayfryd Steinberg Professor and co-director with Kunreuther of Wharton’s Risk Management and Decision Processes Center, helped design to test certain ideas about how humans perceive “risk.”

It works like this: Quake players are presented with a little icon of a house on a map of a hypothetical …country. They also get a pot of digital cash—$20,000. Players are told at the start of the game that at any time, an earthquake can hit, either severe or mild, and that three to five quakes will hit during the course of the game. Then all the players have to do, it turns out, is decide what to do with their money: they can pump it into their homes, making them safer by purchasing a series of structural upgrades (to the chimney, the door frame, the roof, etc.) or they can leave it in the bank and earn 10 percent interest. The game unfolds in real time, and up to 10 people can inhabit the same Quake world at one time. Players can see other people’s houses and observe their decisions.

Kunreuther, the Cecilia Yen Koo Professor, and Meyer have run the Quake simulation for the past four years, using students in Kunreuther’s Risk Analysis and Environmental Management class as the guinea pigs/gamers. By now, about 500 students have played the game, and every time, they play it essentially the same way.

They tend to begin the game cautiously, spending money to build stronger roofs and walls. But as the game goes on, they take more risks. Instead of spending their money to avoid disaster and death, they keep it in the bank to earn interest. “They think, ‘Can I get away with the next 30 seconds in the game?’” says Meyer. “‘What are the odds of getting destroyed in the next 30 seconds? Well, probably very little.’ So they think, ‘OK, I’ll go a minute.’ And of course eventually they get destroyed.”

…It’s not like the students don’t know what’s coming, either. When asked if they understand what’s going on, they always say, yeah, they get it: they’re about to get hit by an earthquake. So if it’s not stupidity or ignorance, why do the students keep losing? Kunreuther and Meyer believe the game demonstrates a psychological bias toward short-term maximization instead of long-term planning—a psychological bias all humans share….

Soldiers in the rubble of the 1906 San Francisco earthquake

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