QUES­TIONS FOR

A pro­fes­sor who has made it her life’s work to un­der­stand how we make de­ci­sions shares some of her key find­ings.

Rotman Management Magazine - - CONTENT - Elke We­ber

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.

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