How to Predict the Unpredictable

The Art of Outsmarting Almost Everybody

William Poundstone

• Publisher: Oneworld Publications
• Year: 2014
• eBook ISBN: 9781780744087
• Topic: Business
• Subtopic: History & Theory in Psychology
• Index: Business

We are hard-wired to believe that the world is more predictable than it is. We chase 'winning streaks' that are often just illusions, and we are all too predictable exactly when we try hardest not to be.In the 1970s, Daniel Kahneman and Amos Tversky coined the phrase 'representativeness' to describe the psychology of this behaviour. Since then representativeness has been used by auditors to catch people fiddling their tax returns and by hedge fund managers to reap billions from the emotions of small investors. Now Poundstone for the first time makes these techniques fun, easy, and profitable for everyone, in the everyday situations that matter. You'll learn how to tackle multiple choice tests, what internet passwords to avoid, how to up your odds of winning the office Premier League sweepstakes, and the best ways to invest your money.

Part One

The Randomness Experiment

One

The Zenith Broadcast

“Commander” Eugene Francis McDonald Jr. favored checked suits and a cocktail made of gin and pistachio ice cream. He resided on his 185-foot yacht, the Mizpah, docked in Chicago’s Lincoln Park Yacht Harbor. As the chief executive of the Zenith Radio Company, McDonald lived as swashbuckling a life as any titan of industry could hope for. His interests ranged from Arctic exploration to searching for pirate gold.

McDonald’s primary contribution to American business was the publicity stunt. In 1934 he sent a telegram to every US tire and oil company: WATCH ABSENCE OF PEOPLE ON STREET BETWEEN ELEVEN AND ELEVEN THIRTY DURING PRESIDENTIAL TALK. The streets were indeed deserted during Franklin Delano Roosevelt’s fireside chat. A follow-up mail-out touted the power of radio. The B.F. Goodrich Company agreed to sell Zenith’s radios through its chain of 1,200 tire dealers. Many radio shops had gone bust after the stock market crash, making this a lifeline for Zenith.

McDonald supplied Zenith radios to Hollywood movie sets, inventing product placement. From 1929 into the television era, Zenith radios appeared in films ranging from Busby Berkeley musicals to Night of the Living Dead. They’re in war pictures, comedies, film noir, and Three Stooges shorts. In one, Curly gets hit over the head with a Zenith radio — which must have been how regular moviegoers felt. McDonald didn’t pay for the plugs. Zenith sent along two radios to each production, one for the property manager to take home as swag and the other to appear on-screen, preferably in a close-up.

McDonald’s biggest publicity stunt of all involved network radio at the peak of its influence, in 1937. In May of that year, a few words from NBC announcer Herb Morrison were sufficient to destroy an industry. “It’s burst into flames,” gasped Morrison as he watched the Hindenburg disaster unfold. “Oh, the humanity!” Thereafter no one wanted to fly a dirigible. In 1937 Arturo Toscanini picked up the baton of the NBC Radio Orchestra, and the young Orson Welles took over as the voice of The Shadow. But nothing on the 1937 radio dial was as peculiar as the show that “Commander” McDonald cooked up.

Across the nation, Zenith dealers began handing out complimentary decks of cards. A free pack of cards was hard to pass up in those Depression years, but these were not cards that anyone could play a normal game with. The backs shimmered with a hypnotic design containing the Zenith logo and the words DEVELOPED IN PARAPSYCHOLOGY LABORATORY AT DUKE UNIVERSITY.

The cards were promoting a new Sunday-night radio series. It was McDonald’s plan to capitalize on the nation’s craze for ESP (extrasensory perception). During the mid-1930s, Joseph Banks Rhine commanded the nation’s attention with his psychic experiments at Duke University. He claimed success in demonstrating telepathy, clairvoyance, and telekinesis. With piercing eyes and a dramatic sweep of steely hair, Rhine — a botanist by training — was a compelling advocate. He received mostly favorable attention in publications ranging from the New Yorker to Scientific American. As one journalist condescended, Rhine made ESP “the brief rage of women’s clubs all over the U.S.”

On a balmy June night, Rhine and his wife had dinner aboard McDonald’s yacht. McDonald sketched his idea for a nationwide test of ESP by radio. Listeners could test their own psychic powers. It would be the biggest experiment ever, providing the best possible proof that telepathy was real.

Rhine was not sure that his newborn science was ready for prime time. Skeptics suspected that Rhine was reporting successes and ignoring failures — that some of his telepaths were cheating.

The skeptics didn’t worry McDonald. As one of his associates put it, “nothing stops a crowd on a street like a fight.” McDonald played Mephistopheles, tempting Rhine with plans to monetize telepathy. He said he’d have his attorneys look into copyright and trademark protection for the cards that Rhine used to test ESP. This was the so-called Zener deck, named for a colleague, marked with five symbols (circle, cross, wavy lines, square, and star). Rhine would get a royalty on every pack sold, McDonald promised, and they’d put them in discount stores.

Rhine was ambivalent about the show. He agreed to let his name be used as a “consultant,” on the understanding that other psychologists would supervise the experiments. McDonald agreed.

The half-hour series debuted as The Zenith Foundation on NBC’s Blue Network on September 5, 1937, at 10 p.m. By design, the show’s name didn’t give the slightest clue to its subject matter. It was teased as “a program so DIFFERENT—so STARTLING—so INTERESTING—that it will become a regular habit with people all over the country.” The word Foundation evoked grand philanthropy on the scale of Rockefeller’s, but McDonald saw no reason why public service couldn’t coexist with profit. A flyer sent to dealers spelled it out: “The broadcasts of The Zenith Foundation have been planned to help you sell more Zenith Radios…. Make the best of this opportunity. Get behind it and push.”

McDonald was concerned that the word telepathy might deter the more hardheaded listeners, so the first broadcasts said little or nothing about it. Early episodes took up the theme of great thinkers whose ideas had been unjustly ridiculed. Over a period of weeks, the program eased into a template that remains familiar in today’s cable TV universe — dramatizations of allegedly real psychic phenomena with commentary by a motley group of “experts.”

The novel element, McDonald’s telepathy experiment, was introduced on the fourth broadcast. A panel of ten “senders” in a locked Chicago studio attempted to broadcast their thoughts to the nationwide audience. Listeners were encouraged to write down their psychic impressions and mail them in.

In the first test on September 26, the senders transmitted a random sequence of the colors black and white. To forestall any trickery, the choices were decided during the broadcast by the spin of a roulette wheel.

Narrator: It is best to write down your impression as soon as you receive it. Do not think about it or try to reason it out. Write down your impressions in consecutive order — as rapidly as you get them. The machine is now ready to select number one.

SPIN…STOP…BELL…INTERVAL…BELL

Narrator: That was number one. The machine will now select number two….

Almost as soon as the audience responses started pouring in, it was apparent that something remarkable was going on. There were five black-or-white choices to be guessed. The majority of the radio audience was correct on all but one. Rhine must have felt pleased, and relieved, at this favorable result.

After that first test, Woolworth’s sold out of ESP cards and had to reorder. The card symbols were used in several of the later tests. It’s said that 150,000 packs were printed during the show’s run. They still turn up on eBay.

The next week the choices were drawn from five vegetables: carrots, beans, peas, corn, and beets. This made it harder, as there were five possibilities for each of five places in the sequence. Two times out of five, the choice that got the most listener guesses was correct. That was twice what might be expected from chance.

On the following two broadcasts, the testers again used black and white as the choices. On October 10, the majority’s guess was correct four out of five times; on October 17, five out of seven times.

For the October 24 broadcast, the choices were circle and cross. The transmitted signals were OXXOX, and the majority’s guess was right on every single one.

That’s not to say that every individual listener guessed so well. But somehow the majority choices were amazingly accurate — a telepathy of crowds? In many ways the aggregate results were more impressive than any individual’s could have been. Given that parapsychology was a game of statistical significance, the Zenith experiment was like a more powerful microscope or supercollider, able to discern smaller effects with precision. During its fifteen-week run, the series collected over a million individual guesses, making it the most ambitious test of ESP ever conducted. On many of the broadcasts, the statistical significance of the audience’s correct guesses was fantastically high. The Zenith Foundation later put out a report claiming that the odds against the results being just a coincidence were 10,000,000,000,000,000,000 to one. The radio audience didn’t need that suspiciously round number to feel that it had participated in something uncanny.

Zenith retained several distinguished psychologists to design and carry out the experiment. Behind the scenes, they were fighting tooth and nail.

As Rhine preferred to keep the show at arm’s length — easy to do from his Durham, North Carolina, lab—the hands-on role went to two Northwestern University psychologists, Robert Harvey Gault and Louis D. Goodfellow. Gault, a few years from retirement, had a longstanding interest in telepathy experiments. Goodfellow was a young psychologist in Gault’s department. He wore donnish spectacles and parted his hair down the middle. Both shared McDonald’s conviction that the radio show was a unique opportunity to test whether telepathy was real.

It was easy to replicate Rhine’s experiments, requiring only a deck of cards and a grad student with an hour to kill. Those psychologists who did so were generally disappointed. The inability of colleagues to confirm a finding is supposed to be fatal in science. In reality, it’s never that simple. Rhine’s thesis was, or came to be, that telepathy is a delicate thing. It is not 100 percent accurate, nor can it necessarily be summoned by anyone at any time. A failure to repeat Rhine’s results might simply mean that the subject(s) lacked the “gift.”

Goodfellow and Rhine bickered at long distance over details large and small. Gault was exasperated with both of them. After the first few broadcasts, Goodfellow realized something that infuriated Rhine. Goodfellow could predict the radio audience’s guesses!

It wasn’t telepathy. In a way, it was better than telepathy. Goodfellow had a simple way to predict what the American public was going to think before they knew it themselves.

Interesting as this was, it was not what Rhine or McDonald wanted to hear. Goodfellow’s opinions were a threat to their increasingly profitable ESP industry. Goodfellow was branded an enemy of the paranormal and dismissed from the show. Meanwhile, the ESP program’s novelty wore thin, and the ratings trailed off. In early 1938 McDonald canceled the show.

Goodfellow independently published an analysis of the Zenith results in the Journal of Experimental Psychology. He offered a convincing explanation that did not involve ESP. Time magazine wrote that Goodfellow “pricked Telepath McDonald’s iridescent bubble.” For good measure, Goodfellow debunked some of the tales discussed on the program. In one, a psychic detective was said to have led police to the body of a murdered woman, buried in a woodshed. Goodfellow found court records showing that the body had been located on a tip from a boy who peeked through a knothole.

After that, the parapsychologists’ feud got really childish. Goodfellow, who did not entirely live up to his name, penned an attack on Rhine under a fake name.

Cadaco-Ellis, a Chicago-based publisher of popular board games, introduced a new game called Telepathy. It was created by a certain “Dr. Ogden Reed,” and the instructions slighted Rhine’s science as “full of loopholes.” One criticism was that the ink used to print Rhine’s ESP cards caused the paper to shrink.

Those royalty-bearing cards had brought Rhine no end of grief. In the interests of cost cutting, the cards had been printed on such thin paper that amateur psychics could see through them. Psychologist B. F. Skinner “guessed” twenty-three out of twenty-five cards, to the hilarity of his students. This made Rhine a laughingstock even though he had nothing to do with the cheap cards and they weren’t the ones used in his lab.

It did not take telepathy for Rhine to guess that “Dr. Ogden Reed” was Dr. Louis Goodfellow. “Is it proper,” Rhine wrote to Goodfellow, “for an academic man to use a surreptitious approach (in this case, an assumed name) to avoid having to meet the responsibility for the things he is expressing?”

McDonald was furious. He told Rhine that he should sue the toy company over the game and promised to foot the legal bill himself.

“Rhine an...

Table of contents

• Cover
• Title
• Copyright
• Contents
• Prologue
• Part One: The Randomness Experiment
• Part Two: The Hot Hand Theory
• Epilogue: Fortune’s Wheel
• Acknowledgments
• Notes
• Bibliography
• Index