Everyday life is full of decisions. They can be small decisions like choosing what to eat for lunch or which bathroom stall to use, or they can be more life-changing like choosing a life partner or a car. When making decisions, you are presented with choices, and each one has its pros and cons. But are we rational when we make decisions and judgments? For example, do consumers make rational choices when they are considering which brand of a product to buy?
Being “rational” means choosing the option that will improve your welfare or maximize your gains. Traditionally, philosophers and economists believed that human beings are rational creatures: we will logically calculate the value of each choice, and choose the one that gives us the best outcome (for most people, this means maximizing the amount of money they gain).
But more recently, psychologists have proposed that people are not as rational as they think. Our judgments and decisions are actually influenced by cognitive biases and heuristics. These are mental shortcuts that we can use to make our choice quickly, but that choice may not be the optimal one. We tend to rely on these cognitive heuristics when we have to think under limited time and effort.
Here are some examples of cognitive biases or heuristics that shows how people don’t always make the “statistically rational” choice:
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1. Regret avoidance: once people make a choice, they feel attached to that option because they are afraid they will regret it later if they change their mind.
This was popularized by a journalist who took to the streets to interview people who just bought a lottery ticket before the lottery draw. The journalist said, “I will buy your ticket for twice the amount of money you paid. Do you want to sell me your ticket?” Nearly everyone replied, “No, I don’t want to sell it! What if my ticket ends up being the winning ticket?” So, should you sell it or not?
Actually, the rational choice is to sell it, because you bought the ticket at random and selling it would give you money to buy TWO more tickets… which ultimately would increase your chances of winning! But most people refused to sell their ticket because they were afraid they would regret it later if they sold their ticket away. This emotion is so strong that it biases people towards not selling it.
2. Recognition or availability heuristic: people believe that if they can think of more examples for something, then that event must happen MORE OFTEN.
For example, people were asked: “Do you think it’s safer to travel by plane or car?” Many people replied: “I guess travelling by car is safer, because I saw a lot of plane crashes in the news recently!”
But actually, fatal car accidents are far more likely than deaths from plane crashes, according to statistics. But because plane crashes are dramatic and are more likely to be reported by the media, people also tend to think that they happen more often. Fatal car crashes happen all the time, but they aren’t reported because it’s not sensational news. So even if you can think of more examples for something, especially from the news, it DOESN’T always mean that event is more likely to happen!
3. Gambler’s fallacy: people believe that if an outcome hasn’t happened for a while, it’s now more likely to happen.
Imagine playing a game that involves flipping a coin. You keep getting H, H, H, H, H for the past 5 tosses. So now you’re thinking, “I keep getting H for the past flips, so I should be getting T very soon!” But actually that’s not true. Every coin toss has 2 equally possible outcomes: 50% chance for H, and 50% chance for T. This probability does NOT change, because every coin toss is an independent event and is a random event!
Casinos take advantage of this, because they know people will keep gambling with the false belief that if they’ve lost many times, they will win soon. This is like taking a multiple-choice exam and thinking, “Oh, I haven’t answered A for many questions now, so I should pick A for this one!” Or, people may think, “I’ve been so unlucky this year, so something lucky should happen to me soon”. If the events are truly random, then one outcome will NOT be more likely than the other. But our mind sometimes plays tricks on us.
4. Framing bias: the way the problem is framed or worded will influence what people choose, even though the two choices are mathematically equivalent!
Imagine being in a hospital, and you have to decide whether you want to undergo surgery or not. In one scenario, the doctor tells you, “The surgery is usually safe, but there’s a 5% chance of dying. Do you want to take the surgery?” Most people would hesitate and answer, “No, I don’t think so. I don’t want to die!” Now, imagine a different doctor telling you, “The surgery is usually safe, 95% of patients survive the surgery. Do you want to take it?” In this case, most people would say, “Yes, I’ll take it, it seems safe”!
Notice that the 2 problems are mathematically the same: 95% chance of surviving is equivalent to 5% chance of dying. The difference is whether the question is emphasizing the positive/gains, or the negative/losses. Because the outcomes are exactly the same, people should be equally likely to say yes/no in the two scenarios. But it turns out that the wording of the problem has a very powerful effect on what people choose.
Lastly, this is not to say that people make irrational choices all the time. If people are given enough time and effort to think about each problem carefully, they can figure out the correct answer. But in real life, we sometimes have to make choices quickly and efficiently. That’s when we rely on mental shortcuts like these four examples, and sometimes they lead us to make the “wrong” or sub-optimal choice that doesn’t give us the greatest benefits.
So the answer is Yes, we are capable of thinking rationally, but sometimes we end up thinking irrationally by relying on cognitive heuristics when we are faced with uncertainty.
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References
Bell, D. E. (1982). Regret in decision making under uncertainty. Operations Research, 30(5), 961-981.
Tversky, A., & Kahneman, D. (1971). Belief in the law of small numbers. Psychological Bulletin, 76(2), 105.
Tversky, A., & Kahneman, D. (1973). Availability: A heuristic for judging frequency and probability. Cognitive Psychology, 5(2), 207-232.
Tversky, A., & Kahneman, D. (1981). The framing of decisions and the psychology of choice. Science, 211(4481), 453-458.
