Around the Institute

At a time when the economy is reeling and young people are dying on battlefields in Afghanistan and Iraq, it’s easy to see that bad decision making can lead to dire consequences. It was perhaps those societal problems that organizers had in mind when they planned the daylong symposium “Improving Decision Making: Interdisciplinary Lessons from the Natural and Social Sciences,” held April 17 in the Radcliffe Gymnasium.

But Daniel Gilbert, a Harvard psychology professor and the day’s concluding speaker, put the stakes in even higher relief. “There is only one thing that might lead to the extinction of our species, and that’s bad decisions,” he said. “It’s the only enemy we have.” Avoiding bad decisions, said Gilbert, author of Stumbling on Happiness (Knopf, 2006), requires educated decision makers and an environment that fosters good decisions. Government and business leaders can be much more effective if they understand how people make decisions, most of the day’s speakers said.

“The way we design and describe and frame choices that people make has a huge impact on the choices that they end up making,” said speaker Dean Karlan, a Yale University behavioral economist. Decision makers, he said, need to take into account “how the options will influence the choices that are made, and use that to . . . nudge people toward the decisions they say they actually want to make.”

Karlan said that in Colombia, for example, officials were able to boost school enrollment by 3.3 percent simply by delaying government subsidy checks. Instead of sending them out when the money became available, the government timed the checks to arrive at parents’ homes just as school fees came due.

In another experiment, by adopting the same method banks use to get people to repay loans—regular reminders—Karlan managed to encourage residents of Bolivia, Peru, and the Philippines to save more. Participants in two of the countries were sent monthly text messages that reminded them to save; in the third, test subjects got a reminder letter. Saving in all three groups increased by 6 percent year over year, he said. Now he is planning another study using a piggy bank that sounds an alarm if it is not “fed” every day.

Incentives can also be a good way to encourage behavioral change, Karlan said.

In the Philippines, Karlan’s team invited smokers to take the money they would have spent on cigarettes and instead put it in an interest-free bank account—a suggestion accepted by about 11 percent of those asked. Six months later, if they passed a urine test, the volunteers were given their money back. If they failed, the money was given to a local orphanage. At the end of a year, those who had accepted the challenge were 30 percent more likely to be smoke-free than those who hadn’t. The main idea, Karlan said, is “let’s change the price of good behavior—let’s make it cheaper. Or let’s change the price of vice—let’s make it more expensive.”

Sometimes, several speakers said, decisions seem irrational but actually make sense for the context in which they were made.

Consider the metaphor of two people packing to go on a trip, said Eldar Shafir, a Princeton University psychology professor who studies economic behavior. One has a large suitcase and can easily carry many things. The other has a tiny bag and therefore a harder time choosing what to bring and what to leave behind. If it rains during the trip and the person with a smaller suitcase didn’t pack an umbrella while the one with the bigger bag did, does that make the person with the bigger suitcase smarter?

Poor people effectively have a smaller suitcase than rich ones, Shafir said, and therefore make more packing mistakes—but that doesn’t mean they are any less rational. Payday advances, for instance, seem wasteful because of their high interest rates but make sense if they’re the only way to put food on the table.

As academics try to help officials make better policies, he said, they need to “think of citizens not as faulty economic agents but as a truly different sort of animal guided by a different set of factors that we need to understand and use when we try to improve their lives.”

Women make seemingly irrational decisions when they fail to negotiate for higher pay, promotions, and bigger bonuses, said speaker Linda Babcock, a behavioral economist at Carnegie Mellon University. But the women are making a calculation in their heads that the benefits of a pay increase will be outweighed by the backlash of asking for it—a backlash Babcock says her research has confirmed.

“Sometimes it does hurt to ask,” she said, adding that researchers and policy makers should consider the social aspect of decision making, rather than simply an individual’s choices.

And everyone, regardless of context, simply makes bad decisions sometimes, said George Loewenstein, also of Carnegie Mellon, whose mother, a Radcliffe alumna, had come back to the gym where she once climbed ropes to hear her son speak.

Loewenstein, an economics and psychology professor, referenced a poster that members of a Libertarian group had hung around the Carnegie Mellon campus. It read: “Are you too incompetent to know what’s best for yourself?” “I think the answer is as obvious as they think the answer is,” Loewenstein said. “But my answer is not the same answer as their answer. I do often worry that I am too incompetent to know what’s best for myself.”

During the heyday of the economic boom, he said, Americans spent more than they had. Now that money is tight, Americans are saving 3 percent of their income—at a time when the economy would be much better off if we were all spending that money instead of saving it.

Some people believe that consumers will make better decisions if they have more information, but that’s often untrue, Loewenstein said. Everyone knows that smoking is unhealthful and that donuts and bacon cheeseburgers are fattening, but that doesn’t stop people from smoking or overeating.

Preliminary results from research he is doing on New York City’s new calorie legislation, which requires restaurants to post the calories in menu items, suggest that such information does little to affect the behavior of people without weight issues. Reading the calorie count actually encouraged those who said they were on a diet to eat slightly more, Loewenstein said. “Information doesn’t seem to have much impact on behavior,” he said.

Daniel Gilbert suggested that one of the best ways to improve decision making is to think about it, as the day’s speakers had done. “We don’t need pills to cure obesity or addiction or war or poverty,” Gilbert said in his concluding remarks. “If we only had a pill to take care of bad decisions, all these things would be taken care of. We’re not going to have such a pill. It’s not going to come in pharmaceutical form. But I think what we’ve seen today is there are a lot of smart people out there pushing us toward a solution.”

Karen Weintraub is associate director for communications at Harvard’s Wyss Institute for Biologically Inspired Engineering.

Photos by Tony Rinaldo

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