Human brains have evolved to solve a simple problem, uncertainty. Long, long time ago the members of our species had to be sure of stuff, next meal, avoiding poisonous plants, and avoiding predators, and all of the funny things. So our brains came up with a framework, prediction.
The problem with prediction is sometimes it is irrational from some points of view. For example the supernatural should not be the reason for steep discounts in a super expensive real estate market such as Hong Kong.Turns out it is, and how. Let me cue up the graph.
Hong Kong is one of the priciest real estate markets in the world. There is a lot of competition for houses, and the real estate prices have really accelerated since 2000. In an interesting case of negative spillover the trio of Bhattacharya, Huang, & Nielsen in a very interesting article attempt to calculate ectoplasmic discount (The Economist, 2019).
The authors use the coroner's court record to identify unnatural deaths within a house, it establishes the definition of a haunted house. They cross-reference the haunted house data with information which exists publicly (Hong Kong has sites like spacious which have a list of haunted houses for sale!). They merge the data and around 898 haunted houses changed hands between 2000 and 2015. The findings are interesting, after running the variables and controlling for factors that they can control such as area, seasonal fluctuation, etc. The authors find that there is an average “ectoplasmic discount” (sorry, The Economist!) of 20%, however there is a clear ripple effect in the market where nearby properties fall by 5%, those in the block drop by 3%, and within the same housing complex by 1%.
The properties in any hot real estate market have a huge turnover, or second sales. In Hong Kong the haunted houses have a higher sell off rate than houses without such incidences. The study finds that the price recovery takes a very long time. Interestingly it is not just the fact that houses are haunted what also matters is how they came to be haunted. Suicide in a house, the authors find can reduce the price by 16 to 28%, accidents depress prices by 20%, and murder has the most effect it can reduce the price by 36%, though anecdotal evidence suggests it can be lowered as much as 50%! What would explain this?
The authors offer an interesting explanation. The concept of Feng Shui is very important in the Chinese culture, as 94% of the population identifies as part of the culture (though not necessarily politically) it could explain the decline in property prices. So is it only specific to Hong Kong? The study examines in brief the availability of public information of unnatural deaths, and its effect on real estate prices. It turns out that it exists in the US, UK, and Australia too. In Hong Kong it could be due to Feng Shui but perhaps there is a universal fear of the unknown which a tragedy brings in its wake.
However, in a recent trend the steep discount of haunted houses seem to be getting reversed. Vying for places to stay, the young in the city of Hong Kong are explaining away the tragedy and buying up the haunted houses. It has now become slightly harder to find a good bargain. The following video from the South China Morning Post is a short but recommended watch if this interests you.
The Case for adding Noise, & Celebrating Doubt in Behavioural Economics
Uncertainty is one feature that our brains have always found inconsistent, and yet absolute certainty is not easy to achieve. In absence of certainty we value agency. The designers of terminal at Heathrow or for that matter any other large airport know this. When you disembark from the Heathrow Express and take the elevator there is a button which when pushed up a light comes on, and the lift goes up. The lift would go up without the button as it is connected to nothing but a switch for light. It's absence does induce anxiety in some travellers.
Rory Sutherland has made an interesting case for the initial success of Uber, it was not the technology alone that made Uber such a roaring success but it reduced uncertainty, anxiety by showing the time for the taxi to reach you. Something that was copied by just about every logistic related company thereafter. So perhaps you can think about creating the next best thing in the ever expanding universe of Unicorns by solving a problem psychologically? By reducing the anxiety of not knowing.
However, should we strive for absolute certainty? Let us look at our political landscape. There has been an explosion of ideas, and opinions around how leaders ought to behave. They should be clear eyed, absolutely certain at all times, and yet the world is getting complicated, the information keeps on changing. So how do we marshal our cognitive resources for making the best decisions? Neuroscientists will tell you to embrace uncertainty.
Enter Benjamin Libet, a researcher in physiology at the University of California in San Francisco. Libet wrote a paper in 1983 that is legendary in the neuroscience circles. He discovered with a simple experiment, in which participants scalp had electrodes for measuring the neural activity, and they were asked to move their wrists, either left, or right. However, they had to indicate the exact instant when they decided to move their wrist. The experiment was ingenious as it used a stop watch like device to measure three things down to the millisecond.
First the instant when the neural signals indicated when the decision was made in the brain (in physiology it is referred to as Bereitschaftspotential or readiness potential). Second the instant they indicated the willingness to move their wrist. Third the instant when they moved the wrist. The findings, Bereitschaftspotential in the participants came 400 milliseconds before their self aware decision to move, and which in turn came 200 milliseconds before the movement. The sequence would indicate that they are linear, and nothing worth losing sleep over.
Sleep however was lost as the interpretations of this for philosophers, neuroscientists were quite thorny. Put it simply these decisions are not decisions as we understand them. The relevant attractor state of activity within the specific brain networks were present before the normal decision making circuitry kicked into gear. So decisions that we consciously make might not be all that conscious. By this extension, free will might not exist! Beau Lotto the neuroscientist writes if Libet's experiments are correct, humans might be passive spectators to the ultimate virtual experience, their lives.
The work of Libet has created a field of study called the neuroscience of free will, it is a study of reflexive actions and how do we act with intention? In order to counter this need for absolute certainty that guides, and sometimes leads us astray, we can use imagination or delusion to change our responses to the event in past, and change reflexive behaviour for future. What it does is it changes neither the event, nor our interaction with it, but to a large extent it changes the bedrock on which our perception is made about it.
Imagine how useful it could be if we seek out stories about people's belief in certain things that we might disagree with such as the birther conspiracy, vaccine hesitancy, but using stories and perception work to change stories rather than facts. Understanding transcends context. Just ask a fan, any fan.
The thing that neuroscience has stressed again, and again is that complex networks are just much better at evolving than simple networks. They are much more iterative. However complex systems such as the brain, society, religion, are great at helping us adapt but they are not great at adapting themselves. So how do we interact with a system that thrives on certainty, but the certainty is hard to come by?
This is where we need more integration of behavioural economics and the lab people studying the brain. David Malkin, and Beau Lotto proposed adding noise to a system instead of reducing noise in a system, they created a mathematical model called uber landscapes. They are in some ways like the mathematical attractor landscapes. There is a lot of spillover in these frameworks, as is illustrated by the images below. The images below come from a fascinating explorable created by the Nicky Case, please check out the interactive explanation of attractor landscapes here.
The idea that noise is a flaw in human judgement is fascinating, but dubious. There is now research after research in the field of cognition to illustrate that there are multiple layers to decision making which are not bounded by rationality, or the absence of it. The case of haunted houses in Hong Kong, and elsewhere is one example. Is it noise in decision making? Or is it a neural pathway doing its thing?
Our brains did not evolve to be perfect. They evolved to ensure that we live another day. That is why they crave certainty to the point of driving us to point of no return, but they also crave noise, imperfection or contrast, our senses which guide our decision making require contrast to make sense of information, without contrast it remains meaningless.
How do we use noise, ambivalence, and our neural quirks in behaviourally informed social policy would be worth the enterprise.
Lab of the Week
A lot of the work cited above comes from neuroscientists, one of the most fascinating ones is from the lab of Professor Beau Lotto, his lab of misfits is very innovative. This is how they describe themselves:
“We are the world's only perceptual neuroscience creative studio. We exist to help individuals and businesses adapt and thrive in an increasingly uncertain world by increasing their Perceptual Intelligence”
They can be found here. A lot of their work is available in the public domain, but post registration the experiments can be participated in.
