Thursday, August 18, 2011

Coping with chaos -- with false certainty

I was looking today for a paper -- allegedly published in Science earlier this year -- reporting the results of a re-run of the famous Robert Axelrod open competition for algorithms playing the Prisoner's Dilemma. In that competition, the simple TIT-FOR-TAT strategy -- start out the first time cooperating, and then afterward do whatever your opponent did in the preceding round -- won out easily over much more complex strategies. The twist on the new competition (as I've been told), is to allow copying strategies so players can explicitly mimic the behaviour of others they see doing well. Apparently, some very simple (mindless) copying strategies won this new competition, showing how blind copying can be a very effective strategy in competitive games.

But I must have had the wrong reference, because I didn't find the paper in the 8 April 2011 issue of Science. I'll track it down and post on it soon -- this kind of thing obviously has huge implications for strategies used in financial markets, where copying may well out-perform allegedly more sophisticated techniques. But I stumbled over something else in that issue of Science that is worth mentioning, even if briefly (as I don't have access to Science and haven't yet been able to read the full paper).

The paper is entitled Coping with Chaos: How Disordered Contexts Promote Stereotyping and Discrimination. It reports the results of experiments in which two psychologists, Diederik Stapel and Siegwart Lindenberg, tested how the level of environmental uncertainty might influence the tendency of volunteers to make judgments on the basis of simple stereotypes. They took advantage of a rail strike in Utrecht -- during which train stations became much more littered and disordered. Here's the abstract (at least):
Being the victim of discrimination can have serious negative health- and quality-of-life–related consequences. Yet, could being discriminated against depend on such seemingly trivial matters as garbage on the streets? In this study, we show, in two field experiments, that disordered contexts (such as litter or a broken-up sidewalk and an abandoned bicycle) indeed promote stereotyping and discrimination in real-world situations and, in three lab experiments, that it is a heightened need for structure that mediates these effects (number of subjects: between 40 and 70 per experiment). These findings considerably advance our knowledge of the impact of the physical environment on stereotyping and discrimination and have clear policy implications: Diagnose environmental disorder early and intervene immediately.
This is interesting in this limited context of discrimination and how the orderliness of physical environments might influence it, but the effect described seems in fact to be far more general -- it reflects a human longing for order and simplicity whenever faced with too much uncertainty. On the same point, another notable study from 2008 (also in Science) by Jennifer Whitson and Adam Galinsky showed how uncertainty and loss of control makes people more likely to see fictitious patterns in random data. In brief, they had a set of volunteers plays some competitive games in which they could influence how much the volunteers felt in control. For example, they could induce feelings of loss of control and uncertainty by eradicating any link between the players' actions and the outcomes. Then they tested these people on totally random data sets (some looking like stock market time series) to see how much they would perceive fictitious patterns in the random data. Those primed more strongly with the "loss of control and uncertainty" feelings were significantly more likely to see patterns where there were none -- grasping, apparently, for some kind of order in a perplexing world. The paper is available in full at the link I gave above, but here's the abstract:
We present six experiments that tested whether lacking control increases illusory pattern perception, which we define as the identification of a coherent and meaningful interrelationship among a set of random or unrelated stimuli. Participants who lacked control were more likely to perceive a variety of illusory patterns, including seeing images in noise, forming illusory correlations in stock market information, perceiving conspiracies, and developing superstitions. Additionally, we demonstrated that increased pattern perception has a motivational basis by measuring the need for structure directly and showing that the causal link between lack of control and illusory pattern perception is reduced by affirming the self. Although these many disparate forms of pattern perception are typically discussed as separate phenomena, the current results suggest that there is a common motive underlying them.
This seems to fit in very well with the experiments of Stapel and Lindenberg. It reminds me of what Nietzsche said long ago:
"Danger, disquiet, anxiety attend the unknown — the first instinct is to eliminate these distressing states. First principle: any explanation is better than none.”
 Indeed, this seems to be a very general topic on which a great deal is known from psychology. Galinsky's web site lists a forthcoming article which appears to be a review of sorts. I look forward to reading that.

Also worth a read is this feature in Wired, which discusses some related experiments. Curiously, the article quotes Christina Romer, the former chairwoman of President Obama’s Council of Economic Advisers, on economic uncertainty and it's influence on the opinions of "respected analysts" about where things are going. This was from December 2010:
One sign of heightened macroeconomic uncertainty is that the forecasts of respected analysts are all over the map. According to the Survey of Professional Forecasters conducted by the Federal Reserve Bank of Philadelphia, the difference between the highest and the lowest forecasts of unemployment a year from now is about twice as large as it was before the crisis. And forecasters’ reported uncertainty about their longer-run forecasts has shown no sign of improving over the last year. If professional forecasters are unsure of the future, businesses and consumers certainly are as well.
Then again, this spread in forecasts is a healthy thing. Things were by no means "more certain" before the crisis, it only seemed that way to an army of "respected forecasters" who found comfort in saying pretty much the same thing as everyone else.

4 comments:

  1. witness the current mania, extending from Cramer to the heads of major mutual funds and hedge funds, whereby "high frequency trading" is seen as the source of the recent volatility in markets. Bob Pisani pointed out on his blog last Friday that the general attitude was, "I'm a genius, I can't possibly be losing this much money with my decisions, there must be a cause for my losses in this very chaotic market environment, it can't be me". Companies like Nanex are widely quoted as having found meaningful patterns in the order streams of various electronic exchanges, along with declarations that they've found algorithms, like "Disruptor", that are somehow taking everyone's money. This is superstition and illusory pattern finding writ large, and quite consistent with the discussion above.

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  2. It is called "Apophenia" -- seeing meaningful patterns in random data

    http://en.wikipedia.org/wiki/Apophenia

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  3. Just an update, the paper "Coping with Chaos: How Disordered Contexts Promote Stereotyping and Discrimination" was retracted in Nov 11. More information can be found here: http://www.sciencemag.org.ezlibproxy1.ntu.edu.sg/content/334/6057/760.1

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  4. Coping with uncertainties can also be regarded as opportunities that can test our capabilities.

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