farmdoc's blog post number 160

This week I finished reading Sway. In my view it’s within the genre of books – including The Wisdom of Crowds, The Tipping Point, Blink and Freakonomics – that examines examples, and provides explanations, of facets of human behaviour. I’ve always thought a book, lecture or seminar worthwhile if it gives me one new idea or insight. Sway passes this test. As Farmdoc’s Blog readers know, my favourite hobbyhorse is the Formula 1 Grand Prix in Albert Park. According to the evidence it’s an economic, environmental and social disaster. Yet recently the Victorian government extended the contract – which clearly and unequivocally is irrational behaviour. Sway tells us a prime determinant of irrational behaviour is ‘loss aversion’, i.e. overreaction to a potential loss. And the more meaningful a potential loss is, the stronger the loss aversion is. ‘Value attribution’ is a tendency to imbue someone or something with certain qualities based on perceived value rather than objective data. And ‘diagnosis bias’ is blindness to all evidence that contradicts our initial assessment of someone or something. Given all this, it’s no wonder the government made the irrational – and obviously stupid – decision to extend the contract. And it was equally irrational and stupid for me to have thought before they extended it, that they wouldn’t. Had I read Sway before then, I’d have thought otherwise, i.e. rationally.