Why It Is Hard (and Bad) To Learn From Experience

Experience is a dear teacher. - Benjamin Franklin

Benjamin Franklin is certainly right. However, learning from experience can be expensive. And quite hard.

Kahneman and Tversky in their paper describe the main reasons why it is hard to use experience as an effective source of knowledge:

[...] Effective learning takes place only under certain conditions: it requires accurate and immediate feedback about the relation between the situational conditions and the appropriate response. The necessary feedback is often lacking for the decisions made by managers, entrepreneurs, and politicians because (i) outcomes are commonly delayed and not easily attributable to a particular action; (ii) variability in the environment degrades the reliability of the feedback, especially where outcomes of low probability are involved; (iii) there is often no information about what the outcome would have been if another decision had been taken; and (iv) most important decisions are unique and therefore provide little opportunity for learning ...

Relying only on experience can yield suboptimal outcomes. Max Bazerman and Margaret Neale in Negotiating Rationally give a nice example of why experience is not enough to make a good decision:

Experience by itself, however, does not prepare you to adapt to new situations. Think about a simple task of getting a cab. You are in town for business and staying at a large hotel. How do you get a taxi? Probably, you just step outside, tell the doorman where you wish to go, and he'll hail a cab for you. No big deal.

Now suppose you weren't in New York or some other major US city, but in Bangkok, Thailand, staying at the prestigious Oriental Hotel. If you needed a cab, the doorman at the Oriental would hail one for you and tell the driver where you wished to go. The taxi would cost about what you would expect. However, if you had walked down the streetabout twenty feet and gotten your own cab, the price of the same ride would be about 75 percent lower. You would never know about this price discrimination if you simply followed your experience-based model of getting a taxi because, in the US, walking the extra twenty feet wouldn't save you money.

What you learned from experience is obviously limited by the experiences you've had ...

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