Chicago Business

As you walk down the Colombus Bridge and decide to take the stairs to upper Wacker, look at the side of the fence right where the stairs join the Colombus bridge sidewalk. The word "MENSA" has been written on the maroon-painted steel. Weird, eh? Now some of you may have heard of this organization and may actually be a member of the high IQ society or some similar one. However, it seems that a numerical score on some standardized test (IQ, GMAT, SAT, etc.) is no proof of wits. Allow me to elaborate.

Enter the Reptilian Brain, Humans and Econs
In 1970, neurologist Paul D. MacLean proposed that the human brain has three parts, and that each one grew on top of the other, over evolutionary time. This hypothesis can be simplified into two basic parts which constitute the lower "reptilian intelligence" and higher "mammalian intelligence".

As humans, all our perceptions first enter our brain through our senses and place these perceptions to the amygdala. The amygdala's job is to assess every sense and perception for its emotional relevance to "me" and then pass the "verdict" to the neo-cortex. The neo-cortex brain then comes up with an "intellectual alibi" to justify the unconscious decision made in the amygdala and other unconscious parts of the brain.

You have probably heard of this before if you have read Professors Thaler and Sunstein's Nudge: human beings are often aware of their own limitations: he'll flush his cigarettes down the toilet to prevent his future self from doing what his present self knows to be harmful; she'll promise to start exercising tomorrow and later she'll curse herself for procrastinating.

The Perfectly Rational Man - whom Thaler and Sunstein call an "Econ," to be contrasted with a "Human" - would never have these problems. Econs sit down with a No 2 pencil and piece of paper, and then calmly work out the costs and benefits of all available options, then take the action that maximizes their present and future happiness subject to a discount rate (a future good is worth less than the same quantity of the same good in the present). They don't have an internal procrastinator at war with a rational planner, nor do they ever regret on Friday morning what they did on Thrusday night. Can you tell whether you're an Econ or a Human already?

But what about my high IQ?
Well that's where common knowledge may have misled you. Your high IQ score. Most of us in this school (or so we'd like to think) have somewhat of a high IQ score. But if that's the case, what makes us so prone to the pitfalls of decision making? Why can graduates from Wharton and senior partners from McKenzie get stuck in such shameful insider training scandals like Galleon's? How do "geniuses" like Meriwether, Scholes and Merton end up creating such a near-catastrophic financial blackhole like LTCM? How does the Michael Jordan of CEOs, Chainsaw Al, end up engineering the disgraceful accounting scandal at Sunbeam-Oster?

Let's take a closer look at a case in pont. In a November 2nd article published recently in the New Scientist, the following question was considered: is George W. Bush stupid? It's a question that occupied a good many minds of all political persuasions during his turbulent eight-year presidency. The strict answer is no, the article said. The writer claimed that Bush's IQ score is estimated to be above 120 - arguable, you're right - but which suggests nonetheless that he belongs in the top 10 per cent of the population. Now this, surely, has had very little to no proof in real life during the president's reign in office. Those sympathetic to the former president have acknowledged that as a thinker and decision-maker, he is not the brightest bulb. Political pundits have blamed him of lacking intellectual depth, and said of him that Bush junior was "in a league of his own" compared to U.S. presidents whose intelligence was questioned. Even Bush himself has described his thinking style as "not very analytical".

Now if you jumped to the conclusion that maybe there is more to intelligence than an IQ score, than you just may be right; also, you may have agreed with Keith Stanovich. So how can a "smart" person act foolishly? Mr. Stanovich, professor of human development and applied psychology at the University of Toronto, Canada, has struggled with this predicament for more than a decade.

Stanovich then came to the conclusion that there is nothing incongruous about it. IQ tests are very good at measuring certain mental faculties, he says, including logic, abstract reasoning, learning ability and working-memory capacity - how much information you can hold in mind. But the tests fall through the cracks when it comes to measuring those abilities crucial to making good judgements and better decisions in real-life situations. That's because they are unable to measure abilities such as a person's aptitude to seriously assess information, or whether an individual can override the intuitive cognitive biases that can lead human beings to make the wrong decisions or pick the right answers.

What do Branson, Tarantino and Dell have in common?
You see, that's because although IQ tests and their proxies, which are designed to measure a factor known as general intelligence, are used by many businesses and colleges to help select the "best" candidates, and also play a role in schools and universities, in the form of SAT tests in the US and CATs in the UK, they feel at identifying who will succeed in life. Richard Branson, Quentin Tarantino and Michael Dell are but a few examples of school failures who later kicked ass in real life. A 2007 article in Time magazine entitled "Are We Failing Our Geniuses?" addresses a similar subject and more. But let's not digress.

That said, unlike many critics of IQ testing, the above researchers are not trying to redefine intelligence, which they are happy to characterise as those mental abilities that can be measured by IQ tests. Rather, they are trying to focus attention on cognitive faculties that go beyond intelligence - what they describe as the essential tools of rational thinking and decision making. These, they claim, are just as important as intelligence to judgement.

"A high IQ is like height in a basketball player," says David Perkins, who studies thinking and reasoning skills at Harvard Graduate School of Education in Cambridge, Massachusetts. "It is very important, all other things being equal. But all other things aren't equal. There's a lot more to being a good basketball player than being tall, and there's a lot more to being a good thinker than having a high IQ."

Enough said about IQ testing. I guess the point is made. And if some of you still doubt this, then let's play a little game.

Test your thinking
When researchers put the following three problems to 3400 students in the US, only 17% got all three of them right. Can you do any better? Read the questions and give the first honest answer that comes to your mind. Go.

1. A bat and a ball cost $1.10 in total. The bat costs $1 more than the ball. How much does the ball cost?
2. If it takes five machines 5 minutes to make five widgets, how long would it take 100 machines to make 100 widgets?
3. In a lake, there is a patch of lily pads. Every day, the patch doubles in size. If it takes 48 days for the patch to cover the entire lake, how long would it take for the patch to cover half of it?

On certain types of thinking tasks, such as those involving number ratios, probabilities, deductive reasoning and the use of hindsight, intelligent people do perform better, Stanovich and others have found. This is particularly true when any intuitive pitfalls are obvious, especially if a correct answer depends on logic or abstract reasoning - abilities that IQ tests measure well. But most researchers agree that, overall, the correlation between intelligence and successful decision-making is weak. The exception is when people are warned that they might be vulnerable to a thinking bias, in which case those with high IQs tend to do better. This is likely because while smart people don't always reason more than others, "when they do reason, they reason better", adds Evans.

A Married Person Looks at an Unmarried One
Let's consider the following problem as an example. Jack is looking at Anne, and Anne is looking at George; Jack is married, George is not. Is a married person looking at an unmarried person? If asked to choose between yes, no, or cannot be determined, the vast majority of people go for the third option - incorrectly. If told to reason through all the options, though, those of high IQ are more likely to arrive at the right answer (which is "yes": we don't know Anne's marital status, but either way a married person would be looking at an unmarried one). What this means, says Stanovich, is that "intelligent people perform better only when you tell them what to do".

Perkins explains this as follows: "IQ indicates a greater capacity for complex cognition for problems new to you. But what we apply that capability to is another question. Think of our minds as searchlights. IQ measures the brightness of the searchlight, but where we point it also matters. Some people don't point their searchlights at the other side of the case much, for many reasons - entrenched ideas, avoidance of what might be disturbing, simple haste. A higher wattage searchlight in itself is no protection against such follies." Indeed, it seems even the super-intelligent are not immune. A survey of members of Mensa (the High IQ Society) in Canada in the mid-1980s found that 44 per cent of them believed in astrology, 51 per cent believed in biorhythms and 56 per cent believed in aliens (Skeptical Inquirer, vol 13).

How to avoid making foolish decisions
But what does this mean for us "intelligent" Booth students? Or is "smart/witty" Booth students. You see, it's easy for your mind to lead you up the garden path when it comes to making a good decision. Below are ways to avoid the common pitfalls.

CLEAR YOUR MIND
Judgementscan often be based on a piece of information you have recently had in mind, even if it is irrelevant. For example, bidding high at an auction after pondering the height of the tallest person in the room.

DON'T FALL FOUL OF SPIN
We have an inclination to be strongly influenced by the way a problem is framed. For instance, people are more likely to spend a monetary award immediately if they are told it is a bonus, compared with a rebate.