236 - Mental Accounting
Almost all accounting includes “Mental Accounting”, also known as the “two-pocket” theory, a cognitive bias that attempts to divide the same funds into separate categories or “budgets”. There is utility to this approach, as is the case for almost any cognitive bias we observe in action today, but where it fails it fails systematically.
On paper, or in a truly closed system, that systematic failure could exist as an isolated percentage loss, and be written off as part of “the cost of doing business”, but under real-world conditions ANY systematic point of failure involving currency is hunted and exploited by bad actors. Entire multi-billion-dollar markets exist purely for the sake of legally exploiting the flaws in the systems of others.
Dividing funds up into “budgets”, whether for an individual or a company, is “Useful, but wrong”. Those funds are still part of the same pool in all actuality, so while it can be productive to utilize the approach of budgets 80% of the time, the other 20% could strongly benefit from considering how things are playing out in reality, rather than in the alternate reality of constructed categories.
Categories are extremely useful in the sense of utility, even down to the level of neurons and the human motivational system, where constructed categories we call “emotions” are applied to socially learned concepts within the graph-like-structured categories of human memory. It is those capacities that allow us to fluidly and dynamically utilize cognitive biases such as “Mental Accounting”, without which humans couldn’t operate at a “human level”.
One reason why “Collective Intelligence” is synonymous with “Collective Superintelligence” is because any working collective intelligence system is less biased and effectively more intelligent than any one individual within such a collective, often by a wide margin. If such systems are applied even a small percentage of the time to evaluate whole systems rather than small subsets and categories then many of the systematic flaws may finally be closed, translating into far higher quality services, at lower costs, with less internal waste and bickering between departments.
The toolbox should continue to include categories, and humans can more or less continue to apply them as they already do, but adding collective intelligence on top of that can put the toolbox to more effective and intelligent use. This could be compared to having a more intelligent manager, rather than some arbitrary new set of compliance guidelines or “training”.
That will be bad news for a few parasitic industries, but exceptionally good news for everyone they’ve been bleeding dry for years or decades. The world of human health changed dramatically with the discovery and deployment of antibiotics, and the deployment of such working collective intelligence systems is likely to prove just as potent.
