Choose Your Signal Wisely

Psychological research has demonstrated that human beings are particularly susceptible to what are called framing effects. These are differences in the way we respond to a situation, based on how it is framed for us, rather than on its substance.

To take a particularly striking example, American physicians were presented with the following scenario:

“The U.S. is preparing for the outbreak of an unusual Asian disease, which is expected to kill 600 people. Two alternative programs to combat the disease have been proposed. Assume that the exact scientific estimates of the consequences of the programs are as follows: If program A is adopted, 200 people will be saved. If program B is adopted, there is a one-third probability that 600 people will be saved and a two-thirds probability that no people will be saved. Which of the two programs would you favor?”

To which physicians overwhelmingly preferred the former, less risky option. However, consider this slightly modified scenario:

“The U.S. is preparing for the outbreak of an unusual Asian disease, which is expected to kill 600 people. Two alternative programs to combat the disease have been proposed. Assume that the exact scientific estimates of the consequences of the programs are as follows: If program C is adopted, 400 people will die. If program D is adopted, there is a one-third probability that nobody will die and a two-thirds probability that 600 people will die. Which of the two programs would you favor?”

Now the response was inverted. Most physicians preferred the second option by an almost equal majority as the first one had presented itself. Here’s the kicker: these two scenarios are identical! The only difference is the first is framed in terms of lives saved while the other is framed in terms of how many people will die.

This isn’t the only example where subtle changes in the way a problem is presented to us can radically alter our decisions in seemingly irrational ways. However, it does show that what matters often isn’t merely the facts that we face, but how we frame those facts, that lead to different decisions.

Signal and Noise

Another common problem people face is choosing what to focus on in a complex situation where the outcome of any event may have multiple causes.

Consider starting a business. What matters? You could say that product quality reigns supreme, to which you’d find plenty of examples of companies succeeding on the basis of superior products. You could argue that well-timed and targeted marketing is all that matters, pointing out companies that succeeded on the basis of catchy slogans or ad campaigns. You could argue that the dry fundamentals of finance and accounting matter more, with knowledge of costs and systems trumping external factors.

The truth is, you could argue any of the above propositions and you’d probably be right, at least some of the time. Businesses do often succeed and fail on the basis of their product quality, marketing message or cost control.

It’s also clear that none of these factors can explain everything. Regardless of what you take to be the dominant trend, there’s going to be a lot of unexplained, leftover variance in the outcomes of different businesses. Business success is, to use a statistical concept, noisy.

John Nerst argues that we tend to frame our discussions in terms of a signal, which we put emphasis on as the main explanatory variable, and a corrective, or all the other things which change our main result, but don’t fundamentally contradict it.

In his view, this signal-plus-corrective view can lead to some interesting situations where people may fundamentally agree on specific cases, but disagree more generally depending on which view they take as their signal and which as their corrective. To use an example from politics:

“Two people with political views like: ‘The free market is extremely powerful and will work best as a rule, but there are a few outliers where it won’t, and some people will be hurt so we should have a social safety net to contain the bad side effects.’ and ‘Capitalism is morally corrupt and rewards selfishness and greed. An economy run for the people by the people is a moral imperative, but planned economies don’t seem to work very well in practice so we need the market to fuel prosperity even if it is distasteful.’ . . . have very different fundamental attitudes but may well come down quite close to each other in terms of supported policies.”

The reason for the wild divergence in rhetoric for positions which may not be so far apart seems to come from framing effects. One side frames the goodness of markets as the signal, corrected by occasional injustices, the other side frames the injustices of markets as the signal, corrected by occasional efficiencies.

While Nerst focuses on how these framing effects distort our discourse on contentious issues, I believe they can have an important influence on how we handle things, even in our own private lives.

Deciding What is the Signal

Whatever you frame as the signal will tend to receive a disproportionate share of your attention. Conversely, whatever is not the signal will be seen as noise, and receive a lot less attention. Whichever factor gets picked as the signal can therefore have dramatic effects on the decisions you make.

Consider again our original business example. Success in business mostly depends on X. Whatever you answer X with will be your signal, and that will be the quality you’ll aim to optimize.

I know entrepreneurs who have implicitly picked marketing as their signal. These people are relentless in getting media exposure and word of mouth out about their business. And they often get it too, with television appearances, write ups in newspapers and buzz on social media.

The downside, is that by picking marketing as a signal, that necessarily relegates other business factors to the category of noise. Where marketing and product quality trade off, say in a product that oversells its value to users, or attracts a large number of people rather than the best qualified customers, this choice in signal tends to emphasize itself.

I know entrepreneurs who have implicitly picked product quality as their signal. Once again, they usually get it. High-quality products which are meticulously designed. The downside, again, is that these people may sacrifice on things that will get their products exposure, if it has a negative impact on quality—say by sacrificing speed of delivery or scope of distribution.

Where tradeoffs aren’t explicit, what you focus on for the signal can still have important impacts simply by how you allocate your time. It’s not possible to work on everything that could theoretically improve your business, so you end up emphasizing those that are in the signal, to the detriment of whatever is considered noise.

How to Pick Your Signal

All of this implies that picking a signal is going to have tradeoffs. Like the framing problems discussed above these tradeoffs will probably be handled at a subconscious level. That means picking your signal wisely will be very important for the types of side-effects it might create.

The first consideration should be how much your signal actually explains of the outcomes. If you pick an irrelevant attribute and boost it to the level of the signal, you may be disappointing yourself when you can’t actually control outcomes much.

In a fitness arena, it’s now known that diet matters more than exercise for the purposes of losing weight. Given this, if you pick exercise as your signal rather than diet, you may have a harder time shedding pounds because fitness doesn’t account for as much as you’d like it to.

The second factor should be how much of your signal is under your control. If you pick a signal that is good at explaining differences in outcomes, but is totally outside of your control, you may still struggle to shift outcomes.

Intelligence is an important factor, perhaps the most important factor, for success on intellectual tasks. But since we can’t generally improve our intelligence in the short-term, it’s probably not the best one to focus on. Indeed, studies with students find that those who believe in hard work tend to do better than those who take fixed ability as signal.

The third factor to consider, presuming you’ve picked a potential signal that has good explanatory power and is susceptible to your decisions is to look at how your choice of signal will create side-effects. Choosing the least-bad side-effects may be a reason to choose between seemingly similar choices for signals in your pursuits.

I generally opt for product quality over marketing in my own business for this reason. They both matter, obviously, but I prefer the subtle side-effects that a product-quality-as-signal mindset has over one that favors marketing.

Re-evaluating Your Signals

You already have signal-noise frames set for every area of your life. So, in a sense, you’ve already made a decision about what matters and which things are the annoying details that mess up your mental model. The key, therefore, isn’t choosing a signal, but potentially re-evaluating yours.

For any area you’re tackling in life, ask yourself what you believe is the most important attribute for success.

Next, you might want to check whether what you see as obviously being the signal is so obvious to other people. Poll some of your peers or people you respect for what they believe is the most important factor. If you get diverging opinions, you can start to see how different people have picked different signals to focus on.

Ask yourself if any of the signals you heard could plausibly be seen as a main explanatory variable AND a factor you can potentially control. “Luck” is often thrown around as a main explanation for success, but it probably isn’t the best signal to account for, even if it is quite prominent.

Next, try to see if you can spot any patterns of side-effects or weaknesses that people encounter based on their choice of signal. What traps do they fall into? What do they neglect at the expense of something else? Which of these pitfalls seems least-bad to you?

If you can go through all three of these steps with a signal that is not your current emphasis, you might want to open your mind to shifting what you focus on in that area. If the alternative emphasis has more explanatory potency, is more malleable to your decisions and if its side-effects are more tolerable, you may consider putting it as your signal.

Ultimately, getting the “correct” view of reality isn’t possible. At best, we can hope that our frames capture the most important features of a problem and that the simplifications they generate aren’t too harmful. However, once you see that reality is more than just your signal plus a little noise, you also open up the door to seeing things from a different, and sometimes a lot more valuable, perspective.

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