Enculturation and Wall Street

The process of enculturation doesn't just afflict middle-aged scientists, struggling to appreciate a new anomaly. It's a problem for any collection of experts, from CIA analysts to Wall Street bankers. Let's stick with Wall Street, since Goldman Sachs is in the news. The question for senators and regulators is why some very smart people (and their very clever quantitative models) missed a financial bubble that, in retrospect, looks devastatingly obvious.

Let's begin with a classic experiment, led by Jerome Bruner and Leo Postman. A group of undergraduates was briefly shown a series of playing cards. The vast majority of the cards were normal, the usual assortment of face cards and numbered suites. Every once in a while, however, one of the cards was "anomalous," so that Bruner and Postman would flash the students a card that couldn't exist, such as the red ten of spades, or the black five of diamonds. Interestingly, the subjects almost never recognized these aberrations. Instead, they distorted the perception to fit their expectations, so that they remembered seeing a black ten of spades, and a red five of diamonds. They were so familiar with the standard deck of cards that they could no longer see what was unfamiliar. This meant, of course, that they ended up missing the most interesting bits of information.

Such are the hazards of enculturation. The only difference is that, instead of becoming too familiar with a standard deck of cards, we become too familiar with the standard model of physics, or the Wall Street models that assume real estate prices won't drop simultaneously all across the country. And so we become blind to our blind spots. I wrote about the neuroscience of this process earlier this year in Wired:

In one 2003 study, Kevin Dunbar had undergraduates at Dartmouth College watch a couple of short videos of two different-size balls falling. The first clip showed the two balls falling at the same rate. The second clip showed the larger ball falling at a faster rate. The footage was a reconstruction of the famous (and probably apocryphal) experiment performed by Galileo, in which he dropped cannonballs of different sizes from the Tower of Pisa. Galileo's metal balls all landed at the exact same time -- a refutation of Aristotle, who claimed that heavier objects fell faster.

While the students were watching the footage, Dunbar asked them to select the more accurate representation of gravity. Not surprisingly, undergraduates without a physics background disagreed with Galileo. (Intuitively, we're all Aristotelians.) They found the two balls falling at the same rate to be deeply unrealistic, despite the fact that it's how objects actually behave. Furthermore, when Dunbar monitored the subjects in an fMRI machine, he found that showing non-physics majors the correct video triggered a particular pattern of brain activation: There was a squirt of blood to the anterior cingulate cortex, a collar of tissue located in the center of the brain. The ACC is typically associated with the perception of errors and contradictions -- neuroscientists often refer to it as part of the "Oh shit!" circuit -- so it makes sense that it would be turned on when we watch a video of something that seems wrong.

So far, so obvious: Most undergrads are scientifically illiterate. But Dunbar also conducted the experiment with physics majors. As expected, their education enabled them to see the error, and for them it was the inaccurate video that triggered the ACC.

But there's another region of the brain that can be activated as we go about editing reality. It's called the dorsolateral prefrontal cortex, or DLPFC. It's located just behind the forehead and is one of the last brain areas to develop in young adults. It plays a crucial role in suppressing so-called unwanted representations, getting rid of those thoughts that don't square with our preconceptions.

When physics students saw the Aristotelian video with the aberrant balls, their DLPFCs kicked into gear and they quickly deleted the image from their consciousness. In most contexts, this act of editing is an essential cognitive skill. (When the DLPFC is damaged, people often struggle to pay attention, since they can't filter out irrelevant stimuli.) However, when it comes to noticing anomalies, an efficient prefrontal cortex can actually be a serious liability. The DLPFC is constantly censoring the world, erasing facts from our experience. If the ACC is the "Oh shit!" circuit, the DLPFC is the Delete key. When the ACC and DLPFC "turn on together, people aren't just noticing that something doesn't look right," Dunbar says. "They're also inhibiting that information."

The lesson is that not all data is created equal in our mind's eye: When it comes to interpreting our experiments, we see what we want to see and disregard the rest. The physics students, for instance, didn't watch the video and wonder whether Galileo might be wrong. Instead, they put their trust in theory, tuning out whatever it couldn't explain.

How can Wall Street escape such blind spots in the future? David Brooks has a nice riff today on the virtues of decentralizing markets. Or we can look to the Israeli intelligence services. After failing to anticipate the 1973 Yom Kippur war - in retrospect, the warning signs of an Egyptian/Syrian attack look obvious - Israel didn't gut the Mossad, or centralize all authority in a single office. Instead, the government added an entirely new branch of intelligence analysis, the Research and Political Planning Center, which operated under the auspices of the Foreign Ministry. The mission of the new Center wasn't to gather more information; the Israelis realized that data collection wasn't their problem. Instead, the unit was supposed to provide an assessment of the available data that was completely independent of both AMAN (the military branch of intelligence) and the Mossad. It was a third opinion, in case the first two opinions were wrong. In other words, the country reacted to the problem of enculturation by creating a new intelligence culture, with a different set of assumptions, expectations and beliefs.

The success of financial reform won't ultimately depend on the precise details of derivative regulation, or the specific powers of the Consumer Financial Protection Agency. Instead, it will depend on whether or not reform has created a structure - either in the private sector or in government - where people are able to notice the red ten of spades before it's too late. Every mind has blind spots; that's an inevitable side-effect of knowledge. The key is to make sure not everyone is blind to the same thing.

PS. Maybe Wall Street should embrace neurodiversity. My favorite part of The Big Short was really about the cognitive benefits of Asperger's.


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and also there was some personal benefit to going along with the bubble mentality, even if they assumed that the emperor had no clothes. IOW, the principal-agent problem due to other-people's-money.

I read David Brook's column and your blog regularly. It's exhilarating to follow the evolution of ideas. Recommend enlisting Temple Grandin.

By Bill Headridge (not verified) on 27 Apr 2010 #permalink

I suppose attracting more neurodiversity will require that our institutions change their standards for identifying achievement and success in their applicants. In particular, if regulatory institutions continue to demand that their prospective members go through the elite business schools (rather than, say, the Vanderbilt University School of Medicine), then they're only going to get neurotypicals. (Smart neurotypicals, but neurotypicals nonetheless.)

Actually, I'd be very interested to know if there's any research on whether individuals from a more neurodiverse background (especially on the autism spectrum) are less susceptible to phenomena like groupthink that plague even the brightest neurotypicals.

(By the way, I dig your references to the standard model of particle physics! But note that despite all the stereotypes, successful theoretical physicists are actually, by and large, very socially aware; navigating the complicated political hierarchies and networks to reach the top requires substantial social savvy and an ability to absorb quickly the work culture around you.)

Just to be difficult...

I would say that enculturation can be quite productive. It comes about when people, right or wrong, attach themselves to the same set of knowledge and goals and move forward together. The inevitable crash becomes a wonderful opportunity for learning that does not happen without a crash. Think of this as punctuated equilibrium for social, rather than biological, environments.

By Gopherus Agassizii (not verified) on 27 Apr 2010 #permalink

Did Bruner and Postman insure that the students in their experiment did in fact know the standard cards in a deck?

By OftenWrongTed (not verified) on 27 Apr 2010 #permalink

Is this the same phenomenon that causes people within certain groups to adapt to what would otherwise seem bizarre behavior? As an example, in some operating rooms, it is almost accepted that a small number of surgeons will act out by screaming, yelling, throwing instruments and even at times assaulting others in moments of frustration. In any other environment, this would not be tolerated. However, from what I've seen, people who work in that environment come to think of it as improper but part of the "way things are" and what needs to be tolerated. As an outsider, that response has struck me as bizarre and distorted. Does the distorion by the group, e.g. acceptance of such conduct arise from what you have written about?

By woodtrain72 (not verified) on 28 Apr 2010 #permalink

There's a great movie called "Interstate 60", written by the guy who wrote Back to the Future, in which Christopher Lloyd's character sort of runs the red-ten-of-spades experiment on another character.

Unfortunately, those that saw both sides like Goldman played it to their advantage so I suspect neurodiversity would have the potential to create even more havoc in the financial world. Yes, challenging entrenched paradigms is the work of higher brain function but like raising an electron to higher orbit requires a fair amount of energy and the human condition is built to be more entropic. The payoff is that is much more interesting and stimulating than pleasing one's boss.

There is a lot more to the phenomena on intuitive physics that you might find interesting. While in this particular case, there is a stark difference between physics students and non-physics students, there are also differences among the non-physics students, as well as different kinds of problems.
For example, McCloskey's original 1983 paper in Science (summary here from Scientific American) pointed out that many people have strikingly wrong understandings of physics in paper and pencil tasks, Kaiser and colleagues (link), showed that some of these misunderstandings disappear when we are shown animations (answers we would have given to a pencil and paper task look silly when we see them animated).
It seems that in terms of perceiving physical events, there is a natural boundary of dimensions that we can see, and that boundary is one dimension. This is why judging which dimensions matter in wheels racing down a hill (mass? size?) we can't quite do it right (it is both: the distribution of the mass is what matters). This is why gyroscopes look magical, because we can't keep track of the two relevant dimensions of motion at once.

How does this relate to enculturation and Wall Street? First, the point about the red spades is a point just as relevant about learning anything. When we learn (and we do learn to see), we organize the information, and things that don't fit into our structure, well, they are very difficult to learn, or even see. I think you make this point that all experts suffer from this, but the real point is that learning of any kind (not specifically enculturation) is structuring the world to fit into our heads.
As far as Wall Street, I think another message of the research on intuitive physics (and into our lack of natural statistical skills as well) should be a humility in the face of our own limited cognitive abilities, even experts. Should we have some people who aren't Wall Street "experts" helping evaluate the risk and structure of incentives in Wall Street? Absolutely, but this is not an issue of "neurotypicals" but just getting people who aren't experts.
I am a big fan of your blog (and your books), but as a cognitive psychologist, I am sometimes put off by the over-brain-ification of some of your terms.
One does not need to add neurosciency jargon of "neurodiversity" to say that decisionmakers on Wall Street should include people with different perspectives, different incentives, and different expertises (I am pretty sure you aren't suggesting that Joe the Plumber should be advising Wall Street, although he would surely bring neurodiversity). Most of the studies on our intuitive understandings of physics have been done by psychologists, and have explained a good deal without having to refer to the DLPFC.
As someone recently referred to the history of psychiatry:
The first half of the twentieth century was brainless (Freud, psychoanalysis) and the second half is mindless (drugs, neurotransmitters). The mind (memory, attention, perception) is still the best level of description that we have for many of these phenomena. Even if we know that these thought processes are instantiated in the brain, that doesn't mean that saying one area "squirts a little bit of blood" into another is any closer to the truth of the matter than saying that what we see is caused by certain beliefs.

Do you know if Dunbar's study on undergrads viewing falling objects was published in an academic journal, and do you have the source? I'd like to include it in a presentation I'm giving, but it would look nicer to my profs with an academic source vs. Wired! ;)

Does enculturalation help explain the "scientific" self serving views of the University of East Anglia and chief enviro-hypocrites Al Gore and David Suzuki?

By Michael Kolodnicki (not verified) on 04 May 2010 #permalink