Tag Archives: economics

Choosing Your Favorite Shit Pile

1. Sim City

Many years ago SimCity “Classic” taught me a very important principle of life: the 10-15% rule.

SimCity is a computer simulation game where the player is the Mayor of a city and as the mayor, the player’s goals are to:

  • keep his job
  • make his city grow (or at least keep stable)

The Mayor must make choices like: expenses used for public utilities (power and water supplies), salaries of city employees (police, firemen …), tax rates, repair projects, school sites and much more. If his choices result in too much spending or bad planning, the city runs out of money, crime multiplies, housing declines and he is voted out of office. If he spends too little on key services, unrest can develop and again he can also be voted out of office.  Being a Mayor is a precarious thing. To aid his survival, not only can he monitor the statistics for costs-in and cost-out, the Mayor also has constant access to his approval rating — and that is the secret!

SimCity appeared to have an implicit rule built in: If the Mayor’s approval rating dropped under 85%, he was kicked out of office. But usually if the Mayor’s rating was much over 90% it was due to short-sighted over-spending and the city ran out of money and quickly collapsed into chaos — with the Mayor again loosing his job. Thus a successful mayor must be comfortable not only with being unpopular to some degree,  but he must actually strive to keep his unpopularity between 10-15% of the population.

2. The Idealism Assumption

One of the greatest philosophical mistakes I see ourselves often making is the “Idealism Assumption“:  it is the assumption that there is always a perfect answer which will have no faults — we search for perfect systems.  And SimCity illustrates this by showing that a Mayor looking for a zero percent disapproval rating will fail. Instead, a deep principle of reality seems to be that, from a human perspective, all systems have unwanted outcomes. A vulgar way of stating this principle is: “Every system has its shit pile”.

3. The Shit Pile Principle

This Shit Pile Principle is why idealism fails and how “pragmatism” got a name. Admitting to your own system’s shit pile can not only improve your thinking but greatly facilitate debates and conversations. Without understanding the 10-15% rule, we are often deluded and lack real insight. Shit piles exist in philosophical systems, economic systems, political systems, religious systems and all organizations.  Every personality type has its own shit piles also — there is no perfect personality type.

I am not writing anything insightful — this is obvious stuff. We have phrases for this obvious fact of life. In medical therapy, undesired but unavoidable consequences are called “side effects”. In economics, undesired, untoward bi-products of a system are called “negative externalities“.   In our daily lives, when unexpected outcomes result from our choices (or from natural causes), some people say “shit happens”. People respond to this “shit” in many different ways (here is that classic humorous list of religious/philosophical responses). There are certainly some ways that are better than others in dealing with shit, but the most important take-home point is to understand that you won’t find a perfect system. We all must learn that our system choices always entail choosing our favorite shit pile.

Question for readers:  Please tell us an embarrassing story where YOU were tricked by the “idealism assumption”.

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Sunk-Cost Fallacy

Self in a holeI was listening to an economics lecture and heard about this fallacy.  It one of the many foibles of human reasoning that shows how difficult it is for us to be rational — AKA “bounded rationality“.

Definition:

Hopelessly investing further in a failed/irrational project or venture. No matter how much more is invested, it is clear that all is and will further continue to be lost.  Yet the person caught in the “sunk-cost fallacy” can not seem to stop throwing away their investment. Colloquially called, “throwing good money after bad” or the “Concorde Fallacy” (see below).

The phenomena is thought to exist because the investor feels that the shame , embarrassment or disappointment of owing up to the failure is more painful than the further investments that keep being lost while putting off that negative emotion.  It is as if you just keep digging yourself into a hole.

Examples:

  • Adolf Hitler (WWII) & Lyndon Johnson (Vietnam War) both kept throwing away the lives and resources of their people (and the enemy) even though they knew the war was lost.
  • The Concorde, a supersonic transport jet, failed any market potential after a freak accident that killed 113 people but was not due to design flaw.  The project got a bad name and was doomed.  Yet France and England kept investing deeper and deeper on the grounds that they had already invested a lot of money.
  • Continuing the cost of tennis lessons even though you’ve decided you hate tennis, because you don’t want to see the money wasted.
  • Continuing your major in College though you have no desire to continue in the field because you don’t want to feel you wasted all that tuition money.

Bait and Switch

Bait and Switch is a fraudulent sales technique which capitalizes on the Sunk-Cost Fallacy.  A seller lures a prospective buyer to their establishment with promises of low cost item.  When the customer arrives, the seller informs the buyer that ‘unfortunately’ the item is now out of stock and offers the buy other similar items of a higher cost.  Now, the buyer, after driving all the way to the store, taking time out of her/his day, having visualized obtaining the object and having their hopes up, must face a decision:  buy the higher cost item and at least have something to show for all my efforts or admit that she/he fell for the fraud and just walk out, promising to themselves to be more cautious next time.

Religion can offer the believer all sorts of benefits and though some may actually materialize, some of the biggest promises don’t pan out (for obvious reasons).  The believer, instead, then buys into cheaper items (I will let you think of example).  Then, once even further invested, the cost of leaving the disappointing religion is felt to be too great.  The believer is left standing at the bottom of a big hole they dug for themselves.  Actually, today I read an   Dr. Richard Beck’s excellent site where, as a Christian, he discussed Bait and Switch and offers ways out (within the tradition, of course).  This article, to me, is an example of how religion can be used well — and ironically, to help people duped by their own religion.

My Question for the De-Converted

Before de-converting, did any of you former-believers feel you fell for the Bait & Switch technique or the Sunk-Cost Fallacy?  Could you give us examples.  How long were in this predicament?  Months? years?

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Notes:

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