Short Takes 3

In the short-takes posts I write about some concepts, phrases, models, ideas, whatever related to my work and life. As these are likely to be known to many, the idea is to just document these together, rather than go into details of these. Will keep updating.

1. Law of the minimum

   Liebig’s law of the minimum states that growth is dictated not by total resources available, but by the scarcest resource (limiting factor). If a farm has ample nitrogen and phosphorus but low potassium, the yield will remain low, limited by the potassium levels. Adding more of a non-limiting nutrient (e.g., more phosphorus) does not improve growth; only adding the limiting nutrient (potassium) will increase the yield. This is related to Theory Of Constraints (The Goal, Phoenix Project), Critical Path Method, etc.

2. Bounded Rationality

   (Came across the idea in the book Thinking In Systems)

   Adam Smith says that every individual by pursuing his own interest frequently promotes that of society more effectually than when he really intends to promote it.

   Unfortunately, we see multiple examples of people acting rationally in their short-term best interests and producing aggregate results that no one likes. Tourists flock to places and then complain that those places have been ruined by all the tourists. Farmers produce surpluses and prices plummet. Fishermen overfish and destroy their own livelihood.

   Bounded rationality means that people make quite reasonable decisions based on the information they have. But they don’t have perfect information, especially about more distant parts of the system. Fishermen don’t know how many fish there are, much less how many fish will be caught by other fishermen that same day. Human decision-making is limited by cognitive capacity, time constraints, and imperfect information, leading people to settle for “satisficing” (satisfactory) decisions rather than optimal ones. Satisficing: Instead of maximizing utility by analyzing all options, individuals choose the first option that meets their minimum requirements, combining “satisfy” and “suffice”.

3. Framing effect

   (Was reminded of this bias when reading the above mentioned wikipedia entry about bounded rationality.)

   Framing effect is a cognitive bias where people’s decisions change depending on how options or statements are framed, even when they are logically identical. A fortune teller predicts that the king’s grandchildren will die before him whereas another says that the king will outlive his grandchildren.