A professor who has made it her life’s work to understand how we make decisions shares some of her key findings.
Evolutionarily speaking, the focus for Homo sapiens is on the here and now. Describe how the focus of Homo Economicus differs.
As the name implies, Homo Economicus is an invention of economists. The assumption is that, as information processors and decision-makers, human beings are rational: We base our decisions on evidence; we evaluate risk and time in appropriate ways; and we combine all inputs in rational ways. The problem with that framework—which is certainly something to aspire to — is that human beings simply don’t work that way, at least most of the time.
Because of the way we evolved, we had to make decisions in a timely fashion in order to survive to see tomorrow; and the result is a focus on the here and now. The problem is, early in our evolution, we were avoiding threats like predators on a daily basis; but today, the threats we face are things like climate change. These are very different kinds of threats, and an approach that served us well in the past does not serve us quite so well now.
In a world where we make choices every day, why is it so important which option we consider first?
In my time at Columbia, I worked for many years with my colleague Eric Johnson on Query Theory, a framework that explains how people actually make decisions across different contexts. One key thing we found is, because humans
are finite information processors, we think about things one at a time.
So, when somebody says, ‘Would you rather buy a new car or save for your retirement?’, you will evaluate those options one at a time. First, you will ask yourself, ‘What arguments are there for buying the car?’ and then, ‘What is the argument for saving for my retirement?’ This approach would be fine, if it didn’t matter in which order you asked yourself these questions, but we found that the option you consider first has a huge advantage.
When you start to think about, ‘What is good about the first option’ (buying the car), it temporarily inhibits arguments against buying the car or more generally, arguments for other options. Then, when you turn to considering the second option (saving for retirement), those initial arguments are temporarily inhibited, so they have a harder time coming to the surface. That’s why, all other things being equal, the first option you look at has such a huge advantage. Of course, marketers have known this for a long time — which is why they are always so keen to direct our attention to the option they want us to buy.
In terms of how people make decisions with respect to environmental concerns—the core of your current research—are you a fan of mandated changes to the status quo, or choice architecture interventions?
It doesn’t have to be either/or. In any complicated context — making decisions about retirement savings, climate change, or what to eat — there is a conflict between doing something that benefits us now vs. doing something that benefits us in the future. As indicated, people tend to focus too much on the here and now, because in simpler times, it was all about survival; the future didn’t matter as much. But these days, as we live longer, the future does matter: None of us wants to be obese in 20 years’ time; we want to have enough money for a comfortable retirement; and we want to leave the earth in an inhabitable fashion for future generations. But because of our in-bred myopia, we can’t simply depend on ordinary citizens to make the right decisions intuitively and instinctively.
Both of the options you mentioned — mandating changes to the status quo and choice architecture interventions that ‘nudge’ people to do what is in their long-term interest — are viable ways of helping to overcome human myopia. Of course, the feasibility of mandated change depends somewhat on the political context. In an environment where mandated change is not feasible, choice architecture interventions are certainly a great tool, as peoples’ autonomy is not restricted. The research shows that in many cases, nudging people in the right direction can achieve the same goals as mandated change.
On that note, both ‘carbon taxes’ and ‘carbon offsets’ are carbon user fees, but the two have very different connotations for people. Please discuss.
This gets us back to Query Theory and the importance of which option is considered first. The million-dollar question is, what determines which option people consider first? One important answer to that is, the default gets considered first. That can be a default in the sense that you have been
Climate change is an example of a behavioural perfect storm.
doing something the same way for a while, or in the sense that someone is recommending that you do something (like sign up to be an organ donor) unless you decide otherwise. Making arguments for the default first makes good sense, because if you’ve been doing something for a while, you probably had a good reason for doing it in the first place; and if the government is recommending something, they probably have your best interest in mind.
However, in lots of situations, there is no default to work with: there are just two or more choice alternatives, and the question is, what determines which option you consider first? In these cases, we have found that the surface attractiveness of the option matters a lot. Something as simple as whether something has a nice name can determine whether you consider it first.
A prime example is carbon user fees. One name for them is carbon offsets, whereby you can travel across the country and offset the carbon emissions of your flight by paying a user fee. Ever since these offsets have been in existence, their uptake has increased each year. People love them — in part because they can fly without feeling guilty. At the same time, carbon taxes, another name for a carbon user fee, have been very unpopular in the U.S. A few years ago I wondered, Are the people who love offsets and those who hate taxes different people, or are they the same, but react differently to the two labels?
We decided to study this question, and found that the answer depended on your political affiliation. When the fee was described as a ‘carbon offset’, 67 per cent of users happily chose to pay the fee. If it was called a carbon tax, it didn’t matter for the self-described Democrats in the study: They were just as likely to pay it (67 per cent.); but for self-described Republicans, the uptake went way down — from 67 to 27 per cent.
When we looked at which option people considered first, we found that — consistent with Query Theory — when Republicans heard the words ‘carbon tax’, they said to themselves, ‘I hate taxes’, and so immediately looked at the op- tion without the user fee. But when it was called a carbon offset — the ‘attractive’ label — they considered that option first, just like the Democrats, and were much more likely to choose it.
You have said: “If we can figure out ways to motivate behaviour change in the domain of environmental action, every other looming social issue will become tractable,” including retirement savings, smoking and obesity. Please explain.
Thirty years ago, when I started to study decision making related to climate change, I realized that I was tackling a perfect storm, because all of the barriers to making rational decisions apply in this context, and they apply in spades. If you think about the timeline for ‘fixing’ climate change, it will take decades — maybe even hundreds of years — but may require significant sacrifices right now. And yet we know that humans don’t like to pay costs up front, especially when the benefits will only come in the future. We also don’t like to give up comfort, or to give something up for the benefits of people in faraway places and faraway times. As a result, we tend to deny the problem or postpone solving it. On top of all that, there is the collective action problem: What if I sacrifice today, but the people in China and India don’t? My sacrifice will be in vain.
Other big issues — smoking, obesity, or saving for your retirement — face similar challenges, in the sense that the costs are up front and the benefits come later. ‘I can’t have my pie today, but in the future, I will be healthy, and I might even live longer.’ But at least these kinds of decisions are made for my future self; it is much more challenging to think about changing the way you live now so that other people down the road — who you will never even meet — will have a decent life. That’s why I believe that if we can find solutions for the most severe example of a behavioural perfect storm — climate change — solutions to the others will become obvious.
In terms of the environment, you have said that neither behavioural or economic solutions in isolation are going to save us. What will?
There are many different approaches to solutions underway, and they all have to be applied in parallel. That includes climate science and knowing when and by how much we have to reduce our C0 emissions; it includes advances in technology that create greater energy efficiency and/or different non-carbon sources of energy; it includes carbon user fees and encouraging lifestyles that use less energy. We can do that with taxes and with mandates, so that brings economics and the government into the equation. The private sector can play a role by addressing any of these areas; and Psychology can play a role alongside Economics, by teaching us how to present options in ways that make them more attractive to people. There is no silver bullet, but in combination, these approaches multiply their power, and they just might get us there.
In preparation for the coming ‘Gray Tsunami’ (whereby the number of people aged 65 and older worldwide will double by 2035), you have also studied older adults’ financial decision-making ability. What were your key findings?
You are referring to a series of studies that Eric Johnson and I conducted to explore the effects of aging on decision making, as predicted by Query Theory. I explained earlier that in Query Theory, inhibition plays a large role: when you think about what is good about Option A — the first option that you consider — you temporarily inhibit arguments for all other options. And we know that as people grow older, they have a harder time recovering from inhibition. So, we hypothesized that as people get older, they might actually start to make more inconsistent decisions as they consider different options first.
Our findings surprised us: It turns out that, as we get older, we do not make more inconsistent or worse decisions. We were puzzled as to how that could be. The reason people get worse at recovering from inhibition has to do with something called ‘fluid intelligence’. This is the raw power of our brains. As we get older, our neurons just don’t fire as quickly and we have a harder time with things like following logic. We tested our respondents for these things and found that, yes, they were getting worse on fluid intelligence as they got older, but their decisions didn’t look any worse. In some situ- ations, people were actually doing better, because they were not as likely to discount future consequences.
When we delved further, we found that there is another form of intelligence called crystallized intelligence, which is the crystal-like residue of our past experiences. You can think about it as the wisdom that comes with acquiring knowledge about the world, and it is tested by things like how well people do on crossword puzzles.
It turns out that crystallized intelligence increases with age, up to a limit. Once you get into your 80s or 90s, it also levels off; but up to a pretty high age, it can continue to increase. And it seems to compensate for our ongoing decrease in fluid intelligence. We somehow manage to make up for the decrease in raw processing power with our stores of real-world knowledge.
Elke Weber is a Professor of Psychology and Public Affairs at Princeton University, where she holds the Gerhard R. Andlinger Professorship in Energy & the Environment. Previously, she was Co-director of Columbia University’s Earth Institute’s Centre for Research on Environmental Decisions and its Centre for Decision Sciences. Her papers, “The Global Climate Regime: Explaining Lagging Reform” and “Complementary Cognitive Capabilities, Economic Decision-making, and Aging” can be downloaded online.
‘Fixing’ climate change will take decades. The problem is, humans don’t like to pay costs up front.