On egocentric framing

We had great weather on the May Day bank holiday. This meant that pretty much everybody around here decided to drive to Rutland Water, with the result that there were hours of gridlock on our usually empty roads.

This was a common mistake. It’s what David Navon calls the egocentric framing error – the tendency to think only from one’s own perspective. It seemed a good idea to each person to drive to Rutland Water. Thousands of these, however, failed to ask: “won’t everybody else have the same idea?” And so they spent hours of a beautiful day stuck in a car.

You might well have made a similar mistake if you’ve been stuck in traffic on a motorway. You decide to change lanes only to see the lane you’ve left move faster because other people had the same idea as you and so emptied a lane.

This costs people real money as well as time. One of the strongest mispricings in stock markets is the tendency for newly-floated stocks to be over-priced and so fall (pdf) in the months after they were issued: to take just three cases that immediately spring to mind, AA, Pets at Home and Saga are all lower now than when they were floated, despite a strong rise in the overall market.

One reason for this, I suspect, is egocentric framing. Investors think “hey, this is a great investment” without stopping to consider things from the seller’s point of view. They don’t ask: if this is such a good business, why are the folk who know most about it so keen to sell?” Exactly the same error can cause people to trade stocks too much. In fact, it can cause people to become money pumps as they fall into the “two envelopes” error.

Bad chess or (I gather) poker players often make the same mistake. They pay too much attention to their own next move and neglect to consider their opponents’ strategy.

A variant of this error is our tendency to be insufficiently self-critical of our own ideas. Like photographers, we fall in love with our models because we don’t sufficiently ask: how do these ideas look to others? We’re especially prone to this if we associate ourselves with like-minded people. When I recently complained about centrists not seeing that they are ideologues like the rest of us I was, in effect, charging them with the egocentric framing error.

There’s a reason why I say all this today. Many people agree with Ian Dunt in thinking the EU will “undoubtedly reject” Theresa May’s plan to have, in effect, membership of the single market for goods but not services. One reason why they believe rejection is likely is that the government has spent so much time negotiating among itself that it has neglected the question: what might be acceptable to the EU? As Jonathan Lis says:

The UK and EU are not speaking different languages, they are occupying different mental universes.

This, though, is egocentric framing – the inability to put yourself in the other guy’s shoes. I fear that in this case the error is magnified by our national self-delusions – our belief that we are an exceptional nation, for example that we are uniquely open to trade (despite the fact we export much less than the Germans) or that they need us more than we need them. (And of course, it's possible that the same error helps explain why ministers have not yet found a compromise among themselves). 

It’s here that I lose patience. In a complex and unknowable world, it is impossible for us to optimize. Some “errors” of policy are therefore inevitable and forgivable. What we should expect of policy-makers, however, is that they avoid obvious mistakes, of which egocentric framing is one. The government, however, seems unable to do this.

Comments

[john dillon]

I dont think the Theresa May self negotiations fits the bill for egocentric thinking. Theresa May is cherry picking in relation to single market and Customs union. Its been repeatedly said that cherry picking is not permitted. Its not even close to being something agreeable. Dilution of CU/SM rules agreed is rightly viewed as a Threat to an already shaky EU. That plus no obvious progress on the border is a bit of a non starter. I think her more obvious tactics is running down the clock on the opposition in her own party. As soon as there is an agreement she is toast.

[Dipper]

I was going to comment, but after reading the post feel others may have more valid opinions.

[Dipper]

@ john dillon. Cherry picking is permitted - Article 8 of The Lisbon Treaty specifically allows it. Furthermore if the EU rejects this then they are in effect putting up a hard border in Ireland and breaking the GFA.

It will be interesting to see what Varadkar says about this. He is in a very difficult position (of his own making). Reject it and he is dictating policy to the UK. Accept it and he risks isolating himself from the EU.

[Robert Mitchell]

I think your overemphasis on trade balance is an example of egocentric framing, because you neglect capital flows which are not captured by commonly-used statistics but which outweigh mere widget trades by orders of magnitude.

[john dillon]

@dipper. The EU will reject it. It doesn't fit the bill for frictionless borders as well as many other issues. As if services don't need to be checked. Regarding the GFA, Its up to the UK to provide the solution but its cant due to weird internal politics of the tories. Varadkar in time will gut it but id image he will leave that to Barnier etal to kick it first. If there was anything reasonable or of merit in the 3 pager, then Boris would have resigned. I image most of europe is planning for a hard brexit at this stage.

[Dipper]

@john dilemma the UK has provided a solution. The GFA requires both sides to negotiate. For one side to say the other side has to adjust is not a negotiation and hence a breach of the GFA.

I'm not sure if the EU and RoI have fully understood that most people in the UK don't give a toss about the GFA and are quite happy top walk away. The GFA is being used by Continuity Remain to sabotage leaving.

[john dillon]

The GFA requires both sides to adhere to their commitments. Its not a negotiation. I agree though the GFA is certainly not a priority within the Tory party and not the #1 priority for the DUP. 2 years into this mess and no realistic and workable proposals nevermind detailed legal text means this is heading for the rocks.

[Noah Carl]

Nice post. As the great economist Thomas Schelling points out in one of his books:

"If your problem is that there is too much traffic, you are part of the problem"