Friday, 18 January 2008

Decisions, decisions, decisions

How do we make decisions?

From choosing the president of our country, to choosing who to marry, to who to pass the ball in a football match, to what to eat for breakfast. What is the process that we follow in order to come up with a definite choice?

When answering this question, scholars are divided into groups. Let’s call the first one “the formal group” and the second one “the experimental group”.

In general, we can include economists, logicians and mathematicians in the first group and psychologists in the second group.

The members of the formal group do not investigate how humans make decisions; they base their conclusions on the tools they use (in fact, the tools they created). The members of the experimental group base their conclusions on research they carry out with humans.

In which of these two groups would you believe? Well, this is a choice too. So, this is a research question for psychologists. Psychological research (for example, the studies of Daniel Kahneman and Amos Tversky) showed that people do not choose necessarily the best option based on the available information. Indeed, there are other factors that influence their choices.

For example, economists in general have a higer profile than psychologists. This difference in profile would influence the perception of the public who would be more inclined to trust the economists. Therefore, paradoxically, psychologists who make the effort of investigating with human beings about their choices would be believed less than economists who do not, because the latter have a higher profile and are considered more prestigious by the public.

OK, but what are the explanations of choices of these two groups?

The formal group says that we either follow the rules of logic, the rules of statistics or that we maximise benefits. When psychologists show several experiments in which this does not happen, the members of the formal group say: “Well, you are measuring performance, not competence (i.e., the capacity to perform, not the actual performance)”.

Since “competence” cannot be measured, then there is no possibility to reach an agreement between these two groups.

The Great Herbert Simon (Economics Nobel Prize winner, 1978) put it very clearly. He stated that the model of the "maximizer" of neo-classical economists is wrong. The number of options that people have to analyse in order to perform a detailed costs-benefit analysis (which would allowed them to choose the decision that maximizes benefits) is enormous, and that the limited capacity of the human cognitive system just does not allow humans to do that. Instead, Simon proposed that humans “satisfice”. That is, they choose satisfactory options; options that pass some threshold of satisfaction. And they do that by being very selective in the options they analyse.

So, scientific research has shown that people are not “maximizers” but “satisficers” when they make decisions. However, media are flooded by economists that make their macro-economical analysis based on the maximization assumption. Rarely do we find psychologists talking about decision making in the media.

Paradoxically, if psychologists aim at being trusted more than economists in this matter, we have to sacrifice a little time dedicated to science and use this time to communicate our knowledge with simplicity and clarity.

In this blog, I will try to do just that.

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