December 2012
Ivan Obolensky

 

On Monday, Wilson Simon decided to eat out for dinner. He feasted on a crab salad appetizer, filet of sole with buttered new potatoes and string beans for the main course, followed by fresh blueberries with cream for dessert. Four days later, on Friday, he noticed a red rash on his face and felt decidedly run down. He figured it must have been something he ate. He recalled that he had eaten tomato soup on Thursday, the day before he saw the rash. Tomato soup was never his favorite, but he had been hungry. He decided it must have been the soup and resolved not to eat any for some time. In the meanwhile he would put something on the rash.

Over the next few weeks his rash went away, and he forgot about it. Two months later a similar rash appeared. He had not had any tomato soup. This puzzled Wilson because he had not eaten a tomato in any form since he had had the reaction. A similar rash had come back off and on for several years following no pattern that Wilson could discern.

The reasons for his inability to isolate the cause of his rash are both mental and physical.

Firstly, he has certain judgmental biases. They have come into play without his being aware of them.

Judgmental biases have started to become more widely known and appreciated as the fields of Behavioral Economics and Behavioral Finance have advanced in importance. In economics, academics had considered Stock Market behavior to be the result of thousands of rational agents taking positions to maximize their gains. Their behavior would have to be rational since real economic risks exist in being invested. It just made sense.

After the dot com bubble and the crash of ’08, what seemed obvious became less so. With even professionals making mistakes costing millions, if not billions of dollars, the behavior of financial markets was looked at as being rational during some periods and irrational in others.

Stock Markets can behave irrationally because participants can behave irrationally. They behave irrationally because of judgmental and decisional biases.

Judgmental biases are systematic deviations from a standard of rationality or good judgment. Humans generalize, distort, and delete the information to which they are exposed. Many of these deletions, distortions, and generalizations have been grouped together under the label of judgmental heuristics. They are judgmental because they involve decisions and heuristic because they are essentially mental shortcuts that promote rapid decision-making.¹

One of the psychological models for the brain is that it is composed of modules, and further, that conflict and competition between modules are necessary for the brain’s overall operation. A simplified example is between Emotion and Reason. People can be torn between the two. They can become conflicted. This means they can have multiple views on a subject; and if forced to decide, these various points of view compete for dominance. This does not involve open warfare, but is more like a political contest as in a two-party political system. Although both parties want the best for their people and their country, they can have contrary ideas of how to get there.²

As an example suppose I receive a 2,000 dollar bonus at work. Do I put this in savings for an emergency, or do I spend it on something I would normally deny myself as I usually do? The internal discussion that follows can take time and is not unlike the debates raging in many governments today. Do we continue to stimulate the economy, or do we tax and rein in spending? As in most things, there is no easy, let alone correct, answer.

How to solve such issues? One way is by means of a judgmental bias that weighs in on one side more heavily than the other.

One might consider having such biases an invitation to wrong decisions and inevitable mistakes. This is not necessarily the case. They do serve a purpose. Being so conflicted so as to remain frozen is also a course of action: to do nothing. One need only observe the United States as it heads toward a fiscal cliff, to begin to appreciate the value of a judgmental bias. It can save a great deal of stress, and what looks like non-constructive debate and recrimination. Inaction can be just as deadly in a survival situation as doing the wrong thing.

By being aware of when such biases may exist and that one has a tendency to follow them, one can better understand the reasoning behind choices and thereby make better decisions.

In the case of Wilson Simon’s rash, he suffers from a bias called Causal Oversimplification.

Most humans attribute a specific outcome to a single cause. One often hears, “The reason the economy is bad…” or “The reason the economy is good is …” We assume one right answer must exist when in actuality most outcomes are the result of several causes. Wilson also suffers from Recency Bias.

Recency Bias is a tendency to weigh recent events more heavily than earlier events. This means that the most current information is considered the most important and the most relevant. As a bias it is related to indulging in immediate gratification rather than waiting for a greater reward in the future. We want results that are instantaneous and those things that happen closest to the present are considered more important.³

Factually, not all natural processes produce quick results, but some are faster than others.

Part of Wilson Simon’s difficulty is that he is suffering from an allergic reaction that manifests long enough after consumption for him not to be able to correlate the reaction with the source, or to discern there is more than one at work.

The most familiar allergic reactions are those caused by bee stings, peanuts, and certain medications. These can cause anaphylactic shock. The symptoms are itchy rash, throat swelling, and low blood pressure which can quickly escalate to needing immediate medical attention.

Anaphylactic shock presents, on average, within five and thirty minutes for injected venom and within two hours for foods. It is the body’s rapid response to a re-exposure of a particular allergen such as a bee sting. A previous initial exposure triggered the production of Immunoglobulin E, an antibody, which in later exposures goes to work and helps generate large quantities of histamines. Histamines are chemicals that generate inflammation and swelling as part of the body’s immune response. Too much swelling and inflammation results in Anaphylactic shock, which is often treated by injections of Epinephrine better known as adrenaline, an anti-histamine, to counteract the body’s potentially life threatening over-reaction.⁴

Although the anaphylactic response is more widely known, there are also slower reacting immune responses particularly in regards food allergies. Just like the bee sting reaction, the initial eating of a food to which one has a later bad reaction precipitates the production of an antibody for future use. One such antibody is Immunoglobulin G₄. Immunoglobulin G₄ (IgG₄) reactions to food often cause delayed symptoms. The reactions can be subtle or severe and may cause rashes, muscle and joint pain, fatigue, chronic headaches and several other symptoms. They are most often associated with foods that are eaten regularly such as dairy, wheat and eggs.⁵

In the case of Wilson a test found him with high levels of IgG₄ for dairy, which includes butter and cream, eggs, as well as high levels for crab, green beans, and blueberries. He had consumed several foods to which he was allergic and would inadvertently put several of these together and get a rash which he could later not explain.*

He followed up with several other tests to confirm, but he eventually found out he was allergic to several foods rather than one.

Allergy tests are available and can help give those who suffer from inexplicable allergic reactions an answer although often more than one type of test is needed.

Determining the causes of events whether of an accident, a disaster, the state of the economy, or even a food allergy are not always simple. Often a thorough examination of the data is needed which takes time. The more outrageous the event, the greater demand for a quick fix and an answer that can be easily understood. This is not always possible. Even in as simple a situation as a rash, isolating the cause can be difficult. Mental biases can prevent even taking a test to help obtain better information because one “knows the answer already”.

When people want fast action and answers, they are more likely to resort to judgmental biases. They will skip the often long and involved examination of information that leads to the correct isolation of causes or are unwilling to accept the even more disturbing answer that not enough information exists to identify the reason or reasons.

 

* Food Sources for high levels of IgG₄ and hence food allergies can be determined by ELISA Assays, (Enzyme-Linked Immunosorbent Assays). This is a technique worked out in the ’70s that links naked eye color changes of a solution to the presence of an antigen, a substance the body is allergic to. In 2012 ultrasensitive tests using nano particles were developed that can detect the presence of an antigen to 10^-18 of a gram. The efficacy and reliability of such tests are controversial but can be a starting point. The quality of the lab work can also be a factor.

 

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1. Tharp, V. K. (2007). Trade Your Way to Financial Freedom. New York, NY: McGraw-Hill
2. Eagleman, D. M. (2011). Incognito, The Secret Lives of the Brain. New York, NY: Pantheon Books
3. Bevelin, P. (2007). Seeking Wisdom from Darwin to Munger. Kansas City, KS: Walsworth Publishing
4. Hornstein, E. (2012). The Risk of Allergies: Explaining Anaphylactic Shock, The Jewish Press.com. Retrieved December 18, 2012 from http://www.jewishpress.com/in-print/supplements/health-and-living/the-risk-of-allergies-explaining-anaphylactic-shock-2/2012/07/12/0/
5. Mullin, G. E, Swift, K. M., et al. (2010) Testing for Food Reactions: The Good, the Bad, and the Ugly. Nutrition in Clinical Practice, Vol. 25 Number 2, 192-198

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© 2012 Ivan Obolensky. All rights reserved. No part of this publication can be reproduced without the written permission from the author.