The experiment might be said to demonstrate a sort of superstition. The bird behaves as if there were a causal relation between its

at regular intervals. In many of Skinners experiments, he rewarded pigeons for particular acts. By reinforcing certain behaviors, Skinner was able to produce pigeons that could play ping-pong, or even pilot bombs. In his superstition experiment, however, Professor Skinner gave the pigeons food without attempting to reinforce any particular behavior. In fact, he gave the pigeons food at regular intervals with no reference whatsoever to the birds behavior.

The outcome of this experiment was superstitious pigeons. Even though the food was given out on a fixed schedule, the pigeons attempted to make sense of the outcomes. (Of course, they didnt really try to make sense of the outcomes; they have tiny brains and even tinier cortexes.) They did, however, change their behavior in ways that may seem quite rational. The pigeons tended to duplicate their own processes that preceded food. Skinner writes,

One bird was conditioned to turn counter-clockwise about the cage, making two or three turns between reinforcements. Another repeatedly thrust its head into one of the upper corners of the cage. A third developed a tossing response, as if placing its head beneath an invisible bar and lifting it repeatedly. Two birds developed a pendulum motion of the head and body, in which the head was extended forward and swung from right to left with a sharp movement followed by a somewhat slower return.

These pigeons were classic stimulus response machines. They replicated actions that led to good outcomes and avoided actions that led to bad outcomes. The actual result was quite amazing. Each pigeon developed its own superstitious behavior. These superstitious pigeons are crazy, because their outcome was not affected by their actions. Nevertheless, the small-brained creatures sought a pattern in their experimentally mad world. Professor Skinner concludes,

behavior and the presentation of food, although such a relation is lacking.

Surely, we humans are much smarter than these pigeons? Yes, with our large prefrontal cortexes we are indeed much smarter. Outside the pre-frontal cortex of our brains less rational notions thrive in the lizard brain. We humans retain brain structures that are little different from the homologous parts of brains in other animals, even some that we might label as quite primitive. The lizard brain is an active, albeit often silent, actor in human decision making.

Consider the following two sequences of heads (H) and tails (T):

Sequence A: H-T-H-T-H-T-T-T-H-H-T-T-T-T-T-T-H-T-H-H Sequence B: T-H-H-T-T-H-T-H-H-T-H-H-T-H-H-T-T-H-T-T

I just created A and B by using two very different processes. I constructed one of the two sequences analytically. I produced the second sequence by flipping a quarter 20 times just now in my office. So one of the sequences was randomly generated by coin flips, while the other was constructed.

So which sequence, A or B, is a random sequence of coin flips? Take a guess before I provide some hints.

Let me tell you more details about the nonrandom process, and youll be able to figure it out. In the constructed sequence, I never allowed more than two consecutive heads or tails. Similarly, in this constructed version, I did not allow a strictly alternating sequence of heads, tails, heads to persist for more than three times.

So sequence A, which contains a long string of consecutive tails is part of the random sequence. Sequence B is the nonrandom sequence. In experiments of this nature, people tend to pick the wrong sequence.31

The point is that our lizard brains seek a logical pattern to illogical behavior. Stock prices have a large random component, yet we are all built to search for patterns in that noise. Many investment strategies are

no better (and perhaps no less entertaining) than the dance moves of our superstitious pigeons.

Irrational Nobel Prizes

The academic battle over irrationality at the individual level is largely complete. There is overwhelming evidence that we do crazy things that defy the laws of logic. The 2002 Nobel Prize in economics, awarded jointly to Professor Daniel Kahneman and Professor Vernon Smith, is symbolic of the victory of those who believe that irrationality is a fundamental part of human nature. In the next chapter, we will see how these quirks and biases play out in financial areas.

Before moving on, however, we must address what may be the mother of all irrationalities, that of self-control. In almost all models of rational behavior, people coolly trade off the future against the present. Should I, for example, pay more money up front on my mortgage and thereby buy myself a lower set of future payments? The single, correct answer is to weigh the cost against the benefit, using the appropriate formula.

While this rational view of decision making is appropriate, and I actually use it from time to time, many other choices are made by far more whimsical processes.

Consider the discussion that I have with my wife, Barbara, about four times a week. As we drive home in the evening, I suggest that we pull into the empty gas station and top off our tank. Unless the gas gauge is banging on empty, she argues against stopping. Please, dont stop. Im really tired, and I need to get home right now.

The result of not topping up is that when we are about to leave on a trip, we need to go to the gas station. These trips often occur during busy afternoons and take much more time and stress than the late-night top off. On each night, however, Barbara looks forward to a blissful future with no time constraints and no fatigue.

Our little game where I threaten to stop in the evening has taken a