“50 cognitive biases to be aware of so you can be the very best version of you” reads an infographic at The Visual Capitalist. If biases are systematic ways our actual thinking diverges from rational thinking, then doesn’t the fact that there are fifty of them just possibly hint that the systematic error lies in how we define rationality? For several years, I had been orbiting Kahneman’s Thinking Fast and Slow and I finally descended to the surface. Even though I’ve ingested a lot of its content second-hand over the decade+ since its publication, there are many fascinating insights and examples that make it a worthwhile read. Still, I keep coming back to a very basic question: Is our model of rational decision-making under uncertainty the problem, and not our purported biases? Is behavioral economics’ long catalog of biases analogous to the epicycles introduced to defend the geocentric worldview?
Example: Kahneman’s subchapter on the “Entrepreneurial Delusion” in which small business owners estimate the chances of any comparable company’s success at around 60% whereas the five-year survival rate of small businesses in the US is around 35%. On the face of it, that might make starting up a business look delusional. Kahneman chalks this one up to optimism bias, also one of the fifty in the infographic. The 60% stat comes from this study in which entrepreneurs were asked something about the “odds of success.” To Kahneman, these are meaningfully comparable numbers: He explicitly says that 60% was “almost double the true value” [my italics]. However, a lot of the difference between 60% and 35% might be explained not by a delusion, but by how entrepreneurs define “success” differently from a five-year survival rate.
Five years is a fairly long time, during which a company may have changed its product, its customer base, its business model, its staff, its ownership structure, and its public-facing name, and yet still continue under its original articles of incorporation. Any one of those changes alone might have merited shuttering the original business and a new incorporation. Was it then a success or a failure? Referring to another paper in the notes of the book, Kahneman writes that “[e]ntrepreneurs who have failed are sustained in their confidence by the probably mistaken belief that they have learned a great deal from the experience.” Why should that belief be mistaken, and why shouldn’t an experiment that rules out a certain path be counted as a success? Kahneman’s comparison of the 60% figure to the 35% figure is an apples-to-oranges situation that does not justify labeling entrepreneurs as “delusional.”
What’s more, if an entrepreneur believed that the success rate – however defined – of a company in her space was 60%, and if there were good reasons to believe that, then many entrepreneurs would attempt to enter that space. But the number of competitors in the space is a major contributing factor to the eventual success rate. The actual success rate is a function of what people believe it to be. In what sense can you even speak of a “true value” until after the startup decision has been made?
The error seems to me to be to apply the same logic you do to a roulette table – with its known outcomes, known probabilities, and independent observations – to a startup, particularly at the small business level where entrepreneurs may be pursuing a range of goals. The people I have known who have embraced an uncertain future, whether as artists or entrepreneurs, have generally not approached their projects as they would casino games. “The world would be a cooler place if my idea worked,” they say. “My life as a whole will be less successful if I do not try this.” They consider what “success” will look like, and if it’s attractive to them. They consider what “failure” would look like and whether it is bearable. They choose endeavors where “heads” means they win in one way, and “tails” means they win in another. Is this delusional and biased? Or is the real delusion to apply casino logic to this life choice?
In any event, if being my best self means maintaining fifty things in awareness, then I’m just going to have to surrender to my “irrationality.”
The Ruminathans 
Dear Nathan,
very interesting, thank you!
I’m just thinking about whether the irrationality of the individual can become a collective advantage. Suppose 100 people are optimistic about a plan, even though empirically only one will succeed. They all go for it. One of them succeeds in discovering an extremely effective cancer therapy. Was the whole thing then rational or irrational? Maybe that’s what happened with Edison and the light bulb.
There would certainly be hundreds of examples in this direction. One would have to go through Kahneman’s findings one by one and check whether it is similar for other “irrationalities”.
Greetings
Heinz
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Exactly! And I think many of the arguments for capitalism as a way to organize our economic relations are focused on allowing for absurdly high individual rewards to motivate the individual risk-taking that creates collective value. Whereas minimizing the downside risk of “failure” might motivate just as much individual risk-taking leading to collective value. E.g. if health risks are insured independently of where and how you work, would more people dabble in entrepreneurship?
I’m considering doing what you suggested with the 50 biases (they did not all come from Kahneman, btw; and I’ve also seen much longer lists), going through one by one to see how many boil down to supposedly incorrect assessments of probability, but where the error lies in treating the probabilities as knowable in the same way the roulette wheel’s probabilities are knowable.
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