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Defaulting to the Default Option

24/2/2015

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Imagine that you’re coming from work really hungry, and you’ve agreed to meet you friends at the local pub in 15 minutes. You need a quick bite, and get a Big Mac meal from the McDonalds next to your office. Of course, as usual, you get the regular side fries and a Coke. But wait – did you actually decide on that?

As far as psychology goes, my best guess would be: no, you didn’t. I certainly haven’t, many times. It’s what comes as standard, and it’s good, so why change what works? What happens is that instead of explicitly thinkin oh, I can get fries, or a salad or nuggets – which is the best? we’ll just go with the standard bundle without really thinking about it.

Well, a restaurant order is surely no big deal, but unfortunately we’re plagued by the same lack of attention also in more serious matters. We just don’t realize that one of the options is the default, but still changeable. Quite likely the most famous example of this is organ donation. Some countries have an opt-in system, which means that if you want to have your organs donated once you meet your maker, you’re going to have to explicitly state that. Other countries have an opt-out system, which means that your organs will be donated, unless you’ve explicitly told no. The big fuss about which system each country is using stems from the fact that countries with different systems vary widely in organ donation rates: those with an opt-in one have most of people not donating, and those with an opt-out one have over 90 % participation rates.

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Why the case is so widely cited is because it’s such compelling evidence of the power of the default. For example, Germany and Austria are culturally very similar, but Germans have a participation rate of 12 %, while Austrians have a rate of 99,98 %. So it’s quite clear the effect is not due to cultural differences. And if you went around and asked Germans and Austrians about why people choose to donate or refrain from donating, they would quite likely be capable of coming up with some kind of reason. But, I’m also sure very few people would cite the default as the reason for their behavior! Certainly, it is the reason, but people would just try to rationalize their decision after the question, simply because they just haven’t given it a lot of thought.Well, you can still argue that no biggie – we’re so unlikely to die by accident that people are just not interested about organ donation, and save their energy for more meaningful decisions.

Unfortunately, it gets even worse. As Shlomo Benartzi and Richard Thaler – both professors of economics – have shown, the same default problem plagues retirement savings. An example that’s so ridiculous to be scary is from the UK. The UK has some defined benefit pension plans that are fully paid by the employer, and require no contribution from the employee. Essentially, it’s free money – the only thing an employee needs to do is to sign up. However, data on 25 such plans reveals that only 51 % of employees had signed up!

The lesson from all this is twofold. First, in many domains there usually is some kind of default option. Be it a retirement plan, a restaurant side dish or the seating on your brand new car, there’s usually an option that’s offered as the default. A lot of marketers are realizing the power of defaults, so I think we can expect the power of defaults to be even higher in the near future. The second lesson is that in decisions that matter, you should be paying attention to whether you’re really getting what you want – or just taking what’s within easy grasp. Especially with wily marketers using the lessons of behavioral economics against you, it’s a wise move to keep up your guard. This requires effort, of course. But hey, who said making important decisions was going to be easy?

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Decisions people Face: Results of the Survey

17/2/2015

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So, last week we did a survey with Tuomas Lahtinen about the difficult decisions people face in the coming year. We got a total of 22 responses. What now follows is some analysis of those responses. Tuomas has yesterday already done a fantastic job of looking at the open question responses, and also categorizing the results. You can see from the figure below (copied from Tuomas’s analysis) that most decisions are related to one’s career. Given that we promoted the questionnaire on Facebook, and like our friends, we’re just the age of finishing up our studies and entering or having just entered work life – it’s hardly a surprise.

Since Tuomas already took a good look at the responses, I’m not going to repeat that. Instead, I’ll do what any analyst always does: wrangle the data for any other useful nuggets of information. So if you’re interested in the responses to the open questions, I direct you to Tuomas’s analysis.
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Okay, so with 22 responses the data is of course not exactly scientific quality, but let’s look at some averages nevertheless. Below are averages to the questions “How well have you figured out the objectives/alternatives/consequence/when to make the decision” by category of the problem. To make the data a little more robust, I’ve combined Education under Career, and took one of the three questions under Other and also put it under Career.
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The finding here seems to be that alternatives are better known than objectives, consequences or time. I guess this makes sense, since often alternatives are mostly a matter of browsing the internet and finding out what’s available. On the other hand, shouldn’t objectives be even easier? After all, to find your objectives, you just need to take a look inside your own thinking and find out what you value. Well, it seems that is not the easiest part of the problem.

What I find interesting is the comparison of career and family. Career alternatives and decision time seem to be relatively well known, but objectives not so much. With family, the situation is the exact opposite: objectives are clear, but consequences and decision time are very vague. This is probably due to the fact that many family decisions we can still afford to put off for several years, whereas many career choices at this point demand our choice by a certain date.

What other interesting patterns can we find? Well, here’s one:
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So, what the correlation matrix shows, is that knowing when the decision should be made seems to go together with better knowledge of alternatives and consequences. Of course, with the data I can’t know whether the causality runs this way – but relying on the fact that people are prone to procrastination – I believe that it’s at least plausible on the face. Deadlines make us focus on the problem, which quite likely helps us to find out better what kinds of alternatives and consequences there are.

All in all, I’m surprised how low the values  in Table 1 are, especially since the measure was a self-report one. It looks to me as if respondents are comparing themselves to a perfect world, which is a tad unfair. We will never have perfect information, and uncertainty is something we’ll just have to tolerate to a degree. Of course, when there are information-laden variables that can help you, you ought to measure. But even after all the measurements you could do, there’s still going to be uncertainty. So what’s one to do? Well, I recommend heeding the advice of Reid Hastie and Robyn Dawes:

“[--] our advice is to strive for systematic external representations of the judgment and decision situations you encounter: Think graphically, symbolically, and distributionally. If we can make ourselves think analytically, and take the time to acquire the correct intellectual tools, we have the capability to think rationally.” – Rational Choice in an Uncertain World, p. 334

So, in short. Recognize that you can’t have it all. Decide what it is that you want, and then apply focused, analytical thinking to reach that. 
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Help us Write better and more influential posts! 

10/2/2015

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Two heads are better than one. That’s why I’ve been recently talking a lot with Tuomas Lahtinen, another great mind and doctoral student of decision making.

Ultimately, the reason why we blog about decision making is that we want to help you to make better decisions. That’s why we’d like to know what important decisions you’ll be facing, and if there’s anything you think might be of help. So please answer this short questionnaire.

We’ll be posting the interesting results and analyses later in our blogs. Knowing what you consider to be your important decisions helps us to focus more on aspects that are relevant to your decision making.

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Good Sources About Decision Making

3/2/2015

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Everyone knows Daniel Kahneman’s Thinking Fast and Slow. But if you’ve already read that, or are otherwise familiar enough for it to have low marginal benefit, then what could you study to deepen knowledge about decisions? Well, here are a few sources that I’ve found beneficial. To find more, you can check out my resources page!

TED talks

In the modern world, we’re all busy. So if you don’t want to invest tens of hours into books, but just want a quick glimpse with some food for thought, there are of course a few good TED talks around. For example:

Sheena Iyengar: The Art of Choosing

The only well-known scholar so far discussing choice from a multicultural context. Do we all perceive alternatives similarly? Does more choice mean more happiness? With intriguing experiments, Iyengar shows that the answer is: it depends. It depends on the kind of culture you’re from.

Gerd Gigerenzer: The Simple Heuristics that Make Us Smart

Gigerenzer is known as one of the main antagonists of Kahneman. In this talk, he discusses some heuristics and how in his opinion they’re more rational than the classical rationality which we often consider to be the optimal case.

Dan Ariely: Are we in control of our own decisions?

Dan Ariely is a ridiculously funny presenter. For that entertainment value alone, the talk is well worth watching. Additionally, he shows nicely how defaults influence our decisions, and how a complex choice case makes it harder to overcome the status quo bias.

Books

Even though TED talks are inspiring, nothing beats a proper book! With all their data and sources to dig deeper, any of these books is a good starting point for an inquiry into decisions.


Reid Hastie & Robyn Dawes: Rational Choice in an Uncertain World

For a long time, I was annoyed there doesn’t seem to be a good, non-technical introduction into the field of decision making. Kahneman’s book was too long and focused on his own research. Then I came across this beauty. In just a little over 300 pages, Hastie & Dawes go through all the major findings in behavioral decision making, and also throw in a lesson or two about causality and values. Definitely worth a read if you haven’t gotten into decision making before. And even if you have, because then you’ll be able to skim some parts and concentrate on the nuggets most useful for you. 

Jonathan Baron: Thinking and Deciding

Talking about short books – this is not one of them. This is THE book in the field of decision making. A comprehensive edition with over 500 pages, it covers all the major topics: probability, rationality, normative theory, biases, descriptive theory, risk, moral judgment. Of course, there’s much, much more to any of the topics included, but for an overview this book does an excellent job. It’s no secret that this book sits only a meter away from my desk, that’s how often I tend to read it.

Keith Stanovich: The Robot’s Rebellion - Finding Meaning in the Age of Darwin

This book may be 10 years old, but it’s still relevant today. Stanovich describes beautifully the theory of cognitive science around decisions, Systems 1 and 2 and so on. He proceeds to connect this to Dawkinsian gene/meme theory, resulting in a guide to meaning in the scientific and Darwinian era.
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